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The SEC Begins Fiduciary Fact-Finding Mission

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The Securities and Exchange Commission plans to ask the investment industry soon to provide it with the information needed to craft an analysis of the potential impact of a uniform fiduciary standard on investors and producers.

The SEC is asking for the information even though the National Association of Insurance Financial Advisors and the Financial Services Institute are telling the Department of Labor they are unable to provide such data.

SEC chairman Mary Schapiro disclosed the agency’s plans in comments at a legal seminar in Washington Friday.

At the same time, Schapiro said that the SEC’s will likely propose its regulation for a uniform fiduciary standard this year.

She also said she “still strongly believes” that putting brokers under a fiduciary mandate “is the direction that we need to go in” despite demands by insurance agents that the proposal be “business-model neutral,” that is allow insurance agents who sell a limited number of proprietary products from the broker-deal unit of insurance companies to continue to function as they do now.

In similar comments, Knut Rostad, president of the Institute for the Fiduciary Standard, said he believes that the SEC will request such data within 30 to 45 days.

The agencies are requesting such information out of concern that any proposal changing the current standard of care in selling investment products will be challenged in court by parts of the industry that oppose such changes.

They are doing so because an SEC rule implementing a proxy access standard was thrown out by a panel of the U.S. Court of Appeals for the D.C. Circuit last year because of a finding that the potential impact on capital formation and competition was not extensively weighed by the agency in the rule.

Barbara Roper, director of investor protection for the Consumer Federation of America, doesn’t believe the issue will be resolved this year.

“Given everything the agency has on its agenda, I think it is all but guaranteed we won’t see any final rulemaking on this issue before the election,” she said.

“There just isn’t time, and the agency is overwhelmed by other responsibilities.  It’s frustrating, but I think the economic analysis is a necessary step, and we’d rather see them get that right than push to get a rule out that ends up being overturned in court,” she said.

Roper contends that the “DOL situation perfectly illustrates the hypocrisy of industry’s argument for more extensive cost-benefit analysis.”

Roper said that, “Industry insists that the agency needs to do more to study the economic costs of its proposal, then refuses to provide the data that would allow the agency to conduct that analysis.”

Her comments were based on a letter NAIFA sent Feb. 17 to the DOL saying, “it is not feasible for us to obtain any of the data” enumerated in a Dec. 15 data request from the DOL. The relationship of our members to their clients and affiliated companies is such that they likely would not have the right to share the client’s or company’s data even if they have some access to it.”

And Friday, FSI officials sent a letter to the DOL saying its ability to provide data to the DOL is “quite limited.”

NAIFA officials deny their unwillingness to participate.

“We responded to DOL’s request within three days of receiving it, just about as quickly as was humanly possible,” said Lillian Vogl, NAIFA counsel, federal government relations.

“We are not stalling in any way. We are committed to do everything we can to help the DOL thoroughly understand the impact of any rule it imposes,” she said.


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