Besides continuing to focus on cybersecurity and elder financial fraud, worries about whether the SEC’s Investor Advisory Committee will continue to exist in 2017, and if the Department of Labor’s fiduciary rule is an investor protection issue, loomed over the IAC’s Thursday meeting in Washington.
David Blass, general counsel for the Investment Company Institute, told members of the Committee during its meeting at SEC headquarters in Washington that DOL’s fiduciary rule “is going to be harmful to investors,” and that evidence of such harm is already being shown in "orphaned" 401(k) accounts. The rule “should be revised and harmonized” with an SEC rule, he said.
IAC’s chairman, Kurt Schacht, chairman and managing director of the CFA Institute, wondered during the meeting if the incoming Trump administration, which he noted has vowed to take a “relook” at the Dodd-Frank Act, would do away with the committee in the New Year.
The IAC, created under Dodd-Frank, “has been an excellent experiment,” Schacht said. “Save the IAC.”
A new calendar year along with a new administration also marks “a new era for this agency,” Schacht added.
Dodd-Frank authorizes the IAC to submit findings and recommendations for review and consideration by the Commission.
SEC Chairwoman Mary Jo White noted during her comments at the meeting the “tremendous asset” the IAC has been during her tenure as head of the agency, adding that “it is worth reminding ourselves of your critical purpose as we are ending this calendar year.”
White, who will leave her post in January, noted that “it is important that the Commission and the Committee continue to work together to address the issues facing investors” into 2017.
SEC Commissioner Michael Piwowar, a Republican appointee – who could be the interim SEC chairman – agreed that the IAC has been “a tremendous asset to the commission,” adding “I look forward to working with you in 2017.”
Marcus Stanley, policy director for Americans for Financial Reform, cautioned during his remarks before the committee that the SEC, under the incoming Trump administration, would likely place a “heavy emphasis on capital formation,” and warned that investor protection measures must go hand in hand with such a focus.
Stanley noted that the Department of Labor’s fiduciary rule, “which is now being implemented, is a dramatic step forward in investor rights,” stressing that the rule “must include” the best interest contract exemption and that it should be enforced.
He criticized the SEC’s enforcement of fiduciary duties for advisors as being “about disclosures,” which permits advisors to recommend products not in the clients’ best interest.
“We believe a disclosure-based standard falls short,” Stanley said, noting that “the DOL rule should serve as a model for the SEC.”
When asked if the SEC should still move ahead with a uniform fiduciary rule for broker-dealers and advisors, Stanley said that the “industry has really invested in compliance with the [DOL] rule, and we don’t want to see a teardown of the rule” or modifying of its elements, “like the private right of action or BIC to start again with something unified.” On the other hand, he added, “if the SEC moves forward with a rule that deals with areas not covered by DOL, that’s great.”
But Blass countered that ICI's “significant concerns” about DOL’s rule have “already started,” with many small accounts being abandoned by their intermediaries. “We see it in orphaned [401(k)] accounts, coming to the [mutual] funds; that’s not a good outcome, it means no one is providing the account any advice because it’s so small.”
--- Check out DOL Fiduciary Rule Likely Delayed, Not Derailed on ThinkAdvisor.