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April 15, 2013 at 12:21 PM
The failure of the Securities and Exchange Commission and the Department of Labor to collaborate on their “overlapping” fiduciary rules on advice to IRA owners will render the SEC’s current cost-benefit analysis worthless, says the lawyer Kent Mason.
Mason, a partner at the law firm Davis & Harman in Washington — which represents the companies that participated in the Oliver Wyman study on IRAs released to the DOL and the SEC last April — told the SEC on Thursday that the agency’s public comment request issued March 1 on costs and benefits of a fiduciary rule includes “a fundamental omission.”
“The DOL project will address, among other things, exactly what the SEC is examining, i.e., the standards of conduct and other obligations of broker-dealers ‘when providing personalized investment advice about securities to retail customers’ who are IRA owners,” Mason told the SEC in his comment letter. “Because it is not possible to determine the effects of possible SEC reforms without taking into account the interaction with possible DOL reforms significantly affecting the same conduct and the same IRA market, the responses to the SEC request will virtually all be incorrect as soon as the DOL acts, thus rendering the SEC’s administrative record unhelpful.”
Mason goes on to write that there is “complete overlap” between the SEC and DOL fiduciary projects on investment services provided to IRA owners.
“Since IRA assets were approximately $4.9 trillion as of the end of 2011, the degree of overlap between the two projects is enormous,” Mason said.
David Tittsworth, executive director of the Investment Adviser Association in Washington, counters that “the DOL fiduciary rulemaking and the SEC’s pending request for information stem from two different laws.”
While the subject matter is related, Tittsworth says, “the provisions of ERISA generally governing the conduct of fiduciaries of pension plans are separate and different from Section 913 of the Dodd-Frank Act, the provision of law that authorizes the SEC to issue rules relating to the standard of conduct for broker-dealers that provide investment advice to retail customers.”
While the industry has consistently urged the SEC and DOL to work together, Tittsworth adds, “as a matter of strict statutory interpretation, the SEC and DOL are constrained by — and must follow — very different statutory mandates. In fact, the argument could be made that, had Congress intended the SEC and DOL to work together on fiduciary rulemakings, Congress could have done so.”
As Phyllis Borzi, head of DOL’s Employee Benefits Security Administration and chief architect of the fiduciary rule, has told AdvisorOne previously, while there is a “primary commonality” between the SEC’s Dodd-Frank project to put brokers under a fiduciary mandate and EBSA’s fiduciary project, which is “to be more clear as to who is a fiduciary under [DOL and SEC’s] respective statutes,” it’s impossible for the two to come out with one fiduciary standard as the statutes they adhere to are “so very different.”
