Norm Champ, the former director of the Securities and Exchange Commission’s Division of Investment Management, said Thursday that there were “significant issues” with the Department of Labor’s forthcoming rule to change the definition of fiduciary on retirement advice.
“I’m afraid by imposing that DOL ERISA fiduciary duty [on brokers] that you will have people exit that business," Champ said. "Brokers will say that ‘I can’t deal with this.’” The rule will “drive advice out of that space,” he said.
Speaking at the IA Watch compliance summit in Washington, Champ was remarking about the report released Wednesday by Sen. Ron Johnson, R-Wis., chairman of the Senate Homeland Security and Governmental Affairs Committee, that DOL “ignored and rejected” concerns raised by the SEC on how to craft its rule to change the definition of fiduciary under the Employee Retirement Income Security Act.
Champ, who’s now a partner in Kirkland & Ellis’ private funds group, said he worries that DOL’s rule, “as with any government action,” will have “unintended consequences,” and that the rule “has been rushed through.”
Champ noted that while he would like to see “the Commission solve this [fiduciary] problem, not the DOL, it’s officially too late for that” as DOL’s final rule will be released before the SEC could issue its own.
Published reports say that Labor Secretary Thomas Perez told members of the House Democratic Caucus on Wednesday that DOL’s final rule would be out in a matter of weeks.
SEC Chairwoman Mary Jo White stated at the SEC Speaks conference in mid-February that she remains committed to working “to develop support” from her fellow commissioners for the agency to move forward on a uniform fiduciary duty for investment advisors and broker‑dealers.
Champ told reporters after his remarks that he was among SEC staff involved in the correspondence with DOL regarding its fiduciary rule, and noted that while the SEC is late to the game in issuing its own fiduciary rulemaking, completing such a rule is not “pointless.”
However, one of the challenges for the agency in crafting such a fiduciary rule for brokers, Champ said, is that the SEC must also “write down” a fiduciary rule for registered investment advisors.
RIAs’ fiduciary template has been “developed by case law,” Champ noted.
“If the SEC writes a fiduciary standard for brokers, how could you do that without writing one for RIAs?”
Champ also reiterated his belief that “the downsides far outweigh the upside” of the SEC moving forward on a proposal requiring advisors to get a third-party audit.
Such audits would likely be performed by accountants, lawyers or a consultant, all of whom the SEC has no authority to examine, Champ said. Also, “What are the scope of the exams going to be?” Champ asked.
Brian Murray, CCO of Delaware Management Business Trust in Philadelphia, who sat on the panel with Champ, added that picking a third-party examiner presents a “huge conflict of interest” for his firm. What’s more, he said, “I’m not going to take them as seriously because they are not the regulator.”
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