While
the previous post discussed the Department of Labor’s (DOL)
fiduciary rule, it is not the only government agency tackling the
issue. In 2010, President Obama signed into law the Dodd-Frank Act,
which authorized the Securities and Exchange Commission (SEC) to
create its own uniform standard of care for financial advisors. To
aid in this endeavor, it also authorized the creation of an Investor
Advisory Committee (IAC) whose purpose was to submit recommendations
to the SEC regarding, amongst other things, the regulation of
securities products and the protection of investor interests.[i]
In November 2013, the IAC issued a report endorsing, “that advisory
services offered as a part of a transaction-based securities business
can and should be conducted in a way that is consistent with a
fiduciary standard of conduct.”[ii]
SEC
Chairwoman Mary Jo White supports tighter regulations for those
making funding recommendation to investors. At an industry
conference, Ms. White stated that it was her “’personal view’”
that brokers and those for whom the Commission provides oversight
should be required to put “clients’ interests ahead of personal
gain.”[iii] Arthur
Levitt, SEC chairman from 1993 to 2001, believes the SEC should have
addressed the issue long before now, given the complexity of the
products being presented to investors by brokers. “’I do not
accept the notion that a broker is an order taker. If he’s a good
broker, he’s much more than that.”[iv]
Industry leaders, including Kenneth Bentsen, president and chief
executive of the Securities Industry and Financial Markets
Association, have expressed support in the SEC taking the lead in
this matter. “’They’ve got the technical expertise.’”[v]
In
testimony before the House Subcommittee on Financial Services and
General Government Committee on Appropriations, Chairwoman White
would not offer a timeframe for the completion, but made it clear
that the SEC would be issuing its own fiduciary standards. Though the
purposed rules may be similar, she stated that the SEC’s would
differ from that of the DOL’s, even though the SEC did provide
“’substantial technical assistance’” in crafting the DOL
version.[vi]
Mark
Trupo, DOL spokesman, claims there was close coordination between the
two departments and that, “engagement with the SEC was
comprehensive, and that the SEC’s input was incorporated into the
plan.”[vii] The SEC refused to
comment. Others, however, were more vocal in their questioning in the
validity of the statement.
In
his report, The
Labor Department’s Fiduciary Rule: How a Flawed Process Could Hurt
Retirement Savers,
Sen. Ron Johnson, chairman of the Senate Homeland Security and
Governmental Affairs Committee, claimed the DOL rule failed to
address 26 significant concerns posited by the SEC. These included
issues regarding the best interest contract exemption, “’conflicts
with federal securities laws and [Financial Industry Regulatory
Authority] rules, and a lack of cost-benefit analysis of
alternatives.’”[viii]
So
why hasn’t the SEC issued its own rule yet? It may have to do with
administrative structure. While the DOL operates under a single
administrator, the SEC has a five-person commission, complicating the
approval process. Some believe the make-up of this commission would
lead to a 3-2 vote on any fiduciary rule, given the current SEC
commissioner and incoming commissioner, both republicans, are likely
to vote against such a measure.[ix]
[i]
U.S. Securities and Exchange Commission (2012). “Investment
Advisory Committee” [Electronic format]. Retrieved from:
http://www.sec.gov/spotlight/investor-advisory-committee-2012.shtml
[ii]
U.S. Securities and Exchange Commission (2013).
“Recommendation of the Investor Advisory Committee Broker-Dealer
Fiduciary Duty” [Electronic format]. Retrieved from:
http://www.sec.gov/spotlight/investor-advisory-committee-2012/fiduciary-duty-recommendation-2013.pdf
[iii]
Baer, J. & Ackerman A. (2015, March 17) SEC Head Backs Fiduciary
Standards for Brokers, Advisors [Electronic format]. Retrieved from:
http://www.wsj.com/articles/sec-head-seeks-uniformity-in-fiduciary-duties-among-brokers-advisers-1426607955?mg=id-wsj
[iv]
Ibid.
[v]
Ibid
[vi]
SEC, DOL Fiduciary Rules Will Likely Be Different, White Says (2016,
March 22). [Electronic format] Retrieved from:
http://www.thinkadvisor.com/2016/03/22/sec-dol-fiduciary-rules-will-likely-be-different-w
[vii]
Barlyn, S & Lynch, S (2016, February 24) U.S. Labor Dept., SEC
Clash Over Retirement Advice Rule: Report [Electronic format].
Retrieved from:
http://www.reuters.com/article/us-usa-brokers-fiduciary-idUSKCN0VX0XZ
[viii]
Senator Blasts DOL for Ignoring SEC’s Fiduciary Rule Concerns
(2016, February 24). [Electronic format]. Retrieved from:
http://www.thinkadvisor.com/2016/02/24/senator-blasts-dol-for-ignoring-secs-fiduciary-rul
[ix]
Why SEC Fiduciary Rule May Be ‘Unattainable’ (2016, March 10).
[Electronic format]. Retrieved from:
http://www.thinkadvisor.com/2016/03/10/why-sec-fiduciary-rule-may-be-unattainable?ref=related-embedded
