Let SEC Take Lead on Investment Advice Standards, Witnesses Say

By Ted Godbout • July 14, 2017 • 0 Comments
Witnesses at a House Financial Services subcommittee hearing July 13 largely offered their support for legislation to repeal the current DOL fiduciary rule and direct the Securities and Exchange Commission to take the lead in regulating the standards of care for investment advice.

Of the five panelists, a representative from AARP was the lone witness to offer continuing support of the current fiduciary rule.

The intent of the hearing was to review the impact of the fiduciary rule on the capital markets and the ability of financial advisors, including broker-dealers, to continue providing “affordable and reliable” retirement investment advice to their customers.

The hearing focused largely on Rep. Ann Wagner’s (R-MO) draft legislation that would repeal the rule and create a new standards of conduct for brokers and dealers. It also focused on whether the SEC is better equipped to update the standard of care for broker-dealers compared to DOL.

As we previously reported, Wagner’s bill would require that a broker-dealer must act in the retail customer’s best interest when providing a recommendation that must: reflect (1) reasonable diligence; and (2) the reasonable care, skill and prudence that a broker-dealer would exercise based on the customer’s investment profile. The bill also would impose what is described as “enhanced disclosure obligations on broker-dealers” and provide the SEC with rulemaking authority to promulgate the content of such disclosures.

Most of the witnesses said they support further delaying the applicability date beyond the Jan. 1, 2018, applicability date for certain provisions set to take effect. Most also indicated their support for the best interest standard included in Wagner’s draft, except for the AARP representative, who contended the standard is “too vague.”


Testifying on behalf of the Financial Services Institute, David Knoch, President of 1st Global, said that he “agree[s] that a carefully-crafted, uniform fiduciary standard of care would be beneficial for investors and reduce regulatory confusion,” but added that “this standard of care should be created and overseen by the SEC, which is what [the Wagner] bill accomplishes.”

In questioning about whether the witnesses believe the SEC is more expertly positioned to regulate in this area versus the DOL, the same line of response was also true, where all witnesses agreed except for AARP, which argued that there’s a role for both agencies.

“Perhaps most importantly, the best interest standard of conduct under the Discussion Draft would apply to the totality of the relationship between consumers and financial professionals; not just the one dimension of the relationship that involves ERISA plan or IRA assets,” noted Mark Halloran, senior director, head of industry and regulatory strategy, Transamerica, who testified on behalf of ACLI. “The bill also installs important statutory safeguards to permit transaction-based financial professionals, including broker-dealer registered representatives and insurance agents, to continue to offer products and services to retail investors under traditional compensation models.”

Testifying on behalf of SIFMA, Jerry Lombard, President of the Private Client Group at Janney Montgomery Scott, LLC, told lawmakers that, “A best interest standard done right by the SEC, the expert agency responsible for broker dealer standards of conduct, would provide protection for retail customers without a bifurcated compliance regime imposed on the same market participants by different regulators.”

Lombard added that he was encouraged by the SEC’s June 1 request for public comment on standards of conduct for investment advisors and broker dealers, and argued that the DOL should delay the January 2018 applicability date to allow the SEC to put in place a standard that works for all accounts.




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