Are you waiting to see the outcome of financial services reform before you make a final determination on how to proceed with harmonizing the rules for broker/dealers and advisors?
At the heart of that issue of harmonizing rules for broker/dealers and advisors is a fiduciary duty, and having the same standard of care for broker/dealers and investment advisors, and that requires legislation. So we’ve been working very hard in the House and the Senate, to mixed results honestly, to try to get that grant of authority to have a fiduciary duty across both categories of financial professionals. So until we have the legislation, it’s hard for us to get very much else done. That said, we have other issues that we’re moving ahead on: 12b-1 fees, point of sale disclosure, things in and around that space that we think are important. But our attention right now is focused on fighting for the legislative provision that would mandate a uniform fiduciary standard.
So you will continue to fight for a fiduciary duty for both brokers and advisors? Absolutely. We sent a letter on March 9, a very strong letter, to the Senate again pushing the issue and we worked hard on it in the House as well. It’s an important issue for us.
As far as the Dodd bill asking for the SEC to study the issue of broker and advisor obligations again, do you think the SEC should be studying this issue again?
We’re happy to study whatever Congress would like us to study. The Rand study was done; I think we have a very good handle on the issue. The key thing from our perspective is that if Congress wants us to study the issue again, that’s fine. But at the end of that study we need the authority to go ahead and take action. [The legislation] doesn’t give us that authority. That’s the real flaw from our perspective. There is not a grant of authority when the study is done to go beyond our existing authority in respect to rule writing.
So you’d have to go back to Congress? That’s the issue.
That could take a long time. Yes. The bill needs to give us the ability to create the fiduciary standard of conduct for all professionals at the conclusion of the study, and that’s the piece that’s so critical that’s missing.
When will something happen with 12b-1 fees? I’m hoping we’re going to go forward this summer. Timing is always hard to predict. But we got a big one out of the way today (April 8) with the new [asset] securitization rules that were proposed. But we have some things in the pipeline that we’re finishing up this year. With 12b-1s, we’re going to try and address the issues that have been perennially raised about 12b-1 fees. Without getting too specific, I would hope we would go beyond disclosure and clarity, which has always been a complaint about, ‘What’s a 12b-1 fee’….but also with the level of fees; we want to look closely at that as well.
What’s your view on how financial services reform is moving forward now?
There are a lot of great things in these bills–a lot of things that are really important for our financial system and for our economy. For example, bringing over-the-counter derivatives under regulation for the first time is critically important. That’s not to say there aren’t so gaps that I think still need to be filled and that deserve more attention in the bill. For example, we’ve got some pretty big end-user exemptions in the House and the Senate bills that would have a lot of swaps not centrally cleared. So I think we have some work to do to narrow some of the gaps and exemptions that exist. I think that the bill creates confusion with respect to securities-based swaps because it doesn’t treat all securities-based swaps like securities even though they are an economic substitute for securities. Some of them will be treated as commodities even though they have securities as their reference point. So we think the lines could have been drawn in a way that was more effective than currently.
We’ve talked about the fiduciary standard part of the bills–on the Senate side we’d like to see that much stronger.