SEC Aligns with White House on Need to Address Fiduciary Standards

By Ray Harmon, John Iekel • March 19, 2015 • 0 Comments
Securities and Exchange Commission (SEC) Chair Mary Jo White confirmed March 17 that the Commission will “implement a uniform fiduciary duty for broker-dealers and investment advisors where the standard is to act in the best interest of the investor.”

The statement, reported by Investment News, comes after years of back-and-forth on the matter and just as the Department of Labor’s reproposed fiduciary rule (now under review at the Office of Management and Budget) is being touted by Sen. Elizabeth Warren (D-Mass.) and pushed by President Obama.

The SEC will pursue its own rules, White said, rather than working jointly with the Department of Labor, because the agencies are acting under different legal authority. Any effort the SEC pursues in this vein will be under the Dodd–Frank Wall Street Reform and Consumer Protection Act (commonly referred to as Dodd-Frank).

In 2010, Dodd-Frank required that any uniform fiduciary standard imposed by the SEC not only preserve commission-based compensation, but couldn’t require advisors to continuously monitor investments. If the SEC moves forward with a “uniform” fiduciary standard, the ironic result would be two kinds of fiduciaries: “traditional” fiduciaries (e.g., RIAs) who don’t receive commission and have a duty to monitor and “new” fiduciaries (e.g., brokers) who can still accept commissions and are still not required to monitor investments. It is unclear how the SEC will address this conflict.

According to Investment News, the other SEC commissioners are evenly split in their views on such new rules, with Luis Aguilar and Kara Stein supporting them and Michael Piwowar and Daniel Gallagher opposing them; White breaks the tie.

White said that next she will have in-depth conversations with the other commissioners. She reportedly did not give a specific deadline for the SEC’s work on such a rule.

The timing of White’s announcement, right on the heels of the Obama administration’s push to end so-called “biased” or “conflicted” financial advice, may signal a concerted effort by the White House to unify the Executive Branch’s narrative on protecting consumers in the retirement planning arena.

The American Retirement Association has long been engaged with the SEC and the DOL on both initiatives. We support a simple, standardized disclosure given to investors before engaging an advisor (and annually thereafter) that explains what standard is applicable to the advisor (i.e., fiduciary or suitability), what services that entails, and how the advisor is compensated. This would give investors information that allows them to make the choice that works best for them, and would likely prevent the unintended consequences that could result from either (or both) regulatory moves currently under consideration.

Ray Harmon, Esq. is Government Affairs Counsel for the American Retirement Association.