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Regulation and Compliance > Federal Regulation > SEC

DOL Seen as First Mover on Fiduciary

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The Securities and Exchange Commission will let the Department of Labor move first in releasing its fiduciary redraft, which DOL recently said won’t come until August, two prominent industry officials predicted in early December.

The Securities and Exchange Commission will let the Department of Labor move first in releasing its fiduciary redraft, which DOL recently said won’t come until August, two prominent industry officials predicted in early December.

“The SEC doesn’t want to go first” in releasing a fiduciary rule, Mary Wallace, senior legislative representative for AARP, said during a panel discussion on fiduciary duty at the Consumer Federation of America’s financial services conference in Washington.

Indeed, Mercer Bullard, founder of Fund Democracy and associate professor at the University of Mississippi School of Law, who sat on the panel with Wallace, told IA before his comments that he believes Perez has decided to revisit the DOL’s reproposal “from the ground up” in order to gain industry support for the rule.

Wallace and Bullard’s predictions run counter to what a bill that passed the full House in late October would require the DOL to do, which is wait to repropose its rule until 60 days after the SEC issues its fiduciary proposal under Section 913 of the Dodd-Frank Act. The Senate Banking Committee, however, has “no interest” in taking up such legislation.

Labor Secretary Thomas Perez and his new deputy assistant secretary Judy Mares are “energized” about the DOL’s rule to amend the definition of fiduciary under the Employee Retirement Income Security Act, Wallace said. Perez has “been doing a lot of pushback” with congressional opponents of DOL’s reproposed rule, she said.

DOL’s will be a “stronger rule,” and it will “bolster” the SEC’s rule, Wallace told IA. DOL is “also more prepared” to release its reproposal, she added.

Bullard agreed that the SEC would wait to release its fiduciary rule for brokers until after the DOL released its fiduciary redraft so that DOL “could take the heat.”

Perez and Mares, who joined DOL in October and hail from the retirement industry, will be getting more feedback from the industry, Wallace said.

The SEC and DOL recently filed their semiannual regulatory agendas with the Office of Management and Budget. The SEC listed its personalized investment advice standard of conduct (fiduciary) rule as a “long-term agenda item” with the “next action” on the fiduciary rule “undetermined.” The DOL said its fiduciary redraft would come in August.

However, the Regulatory Flexibility Act specifically provides that publication of the agenda does not preclude action on matters not included.

Barbara Roper, director of investor protection for the Consumer Federation of America, who moderated the panel at the CFA event, told IA that even though the SEC has listed a fiduciary rule as a long-term agenda item, the important point to note is that such a fiduciary rulemaking “is on the [SEC’s] agenda […]. That suggests to me that the [SEC] chair views it as a priority and that we are moving closer to rulemaking.”

The SEC Investor Advisory Committee subcommittee that Roper chairs just recently got the full committee to approve its recommendation on how the agency should move forward on crafting a fiduciary rule for brokers.

Skip Schweiss, managing director of advisor advocacy and industry affairs for TD Ameritrade Institutional, noted in a recent blog post that committee approval of Roper’s Investor As Purchaser subcommittee plan will serve as the “impetus to move this long-simmering [fiduciary] issue forward.”

However, Bullard was doubtful that the SEC would actually release a fiduciary rule proposal for brokers in the new year, stating that former SEC Chairwoman Mary Schapiro said coming out with a fiduciary duty rule “was a high priority for her for a year; we’re hearing the same thing” from current SEC Chairwoman Mary Jo White.

Wallace was optimistic that the SEC would issue a proposal. “I think we will get both rules, but DOL will go first.”

Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, who sat on the panel with Wallace and Bullard, predicted that the SEC’s release of a fiduciary rule proposal would be “further back in the queue” from the many rules mandated under Dodd-Frank.

When and if the SEC does craft a fiduciary rule for brokers, Hammerman said that it must be a newly crafted fiduciary standard, not simply an “overlay” of the Investment Advisers Act fiduciary standard on brokers. He cited a 2012 letter that former House Financial Services Chairman Barney Frank, D-Mass., wrote to former SEC Chairwoman Mary Schapiro, which said that while Dodd-Frank gives the agency the authority to establish a new fiduciary standard of care for broker-dealers, “the requirement that the new standard be ‘no less stringent’ […] was not intended to encourage the SEC to impose the Investment Advisers Act standard on broker-dealers, but to ensure the new standard would not be a ‘watered down’ version of the investment advisors’ fiduciary standard.”

In his letter, Frank went on to say that if Congress intended the SEC “to simply copy” the Investment Adviser Act standard for brokers, it would have repealed the broker-dealer exemption.


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