SEC Chairman Hopes to ‘Properly Tailor’ Approach to Fiduciary Issues

By John Iekel • September 26, 2017 • 0 Comments
Securities and Exchange Commission (SEC) Chairman Jay Clayton hopes that his agency can “properly tailor” an approach that will best address issues related to those the Department of Labor’s (DOL) fiduciary rule concerns. Clayton made his remark during his Sept. 26 testimony before the Senate Committee on Banking, Housing and Urban Affairs.

“Since my confirmation, the DOL's fiduciary rule has partially taken effect,” noted Clayton. He told the committee, “Staff conversations with investors and firms, prior to the DOL's proposed extension, as well as various press reports, indicate that broker-dealers are considering, and some have started taking, a variety of actions to comply with the DOL Rule.” He said those include:

1. increasing compliance resources and efforts (e.g., disclosure, documentation and training, in particular regarding costs and rollover recommendations);
2. increasing the use of robo-advice; and
3. reevaluating and changing the types of products and accounts (and related fees) offered to retirement investors, focusing particularly on products or accounts that would address the compliance requirements driven by the Best Interest Contract Exemption (e.g., shifting some or all of their retirement accounts to level-fee advisory accounts).

Clayton also told that the committee that the SEC staff “understands mutual fund complexes are considering various approaches to accommodate broker-dealers' efforts to level compensation across similar types of products in response to the DOL Rule.’ Those approaches, he said, include:

1. issuing “clean shares” that do not have any sales loads, charges or other asset-based fees for sales or distribution (thus allowing brokers to set their own commissions that would be paid directly by investors); and
2. issuing “T-shares” — or “transaction shares” — that have uniform sales charges across all fund categories.

Clayton acknowledged that the DOL and his agency “have different statutory mandates, rulemaking processes and jurisdictions,” and that actions one of them takes regarding standards of conduct “are going to have a significant effect” on the regulated entities the other regulates, as well as the marketplace. “In other words, effects of the DOL rule extend well beyond the DOL's jurisdiction, and vice versa.” Accordingly, Clayton said, “It is important that we understand these effects and work closely and constructively with DOL to implement appropriate standards of conduct for financial professionals who provide advice to retail investors.” He added that the SEC is “engaging expeditiously and constructively with our colleagues at the DOL to best serve the interests of investors.”

The SEC has been reviewing standards of conduct “ for some time,” Clayton reported, and noted that on June 1 he asked for public input on the matter and articulated “some key principles” — clarity, consistency and coordination — that he expects will guide the SEC’s approach to such standards.

Clayton further said that the hopes that his June 1 statement “will shape constructively the conversation on this important matter, so that we can properly tailor an approach or package of approaches that we believe will best address the issues identified.” He noted that they have received over 150 comments from investors and the industry, and that he has “personally met with various Main Street investor and industry groups” and that he has “found those conversations beneficial.”