White, Borzi and Legislators Focus on Fiduciary

Duane Thompson, senior policy director at fi360, added that while it’s hard to ignore the fact that a fiduciary rule wasn’t on the SEC’s list of proposed rulemakings for 2014, he’s heard that those who have met with White “were impressed with her knowledge on the issue and that she ‘said all the right things,’ which suggests she is sympathetic to the need for a higher standard and wants to move forward eventually with a rule.”

Thompson said that White’s track record so far places her squarely in the traditional role of former SEC chairmen in that she seems to be “working hard for consensus among the commissioners before moving ahead with a vote on a rule proposal.” He finds it difficult to predict if White would be “willing to move ahead with a fiduciary rule if the commission splits with a 4-1 or 3-2 vote,” Thompson said. “If you look at past rule challenges in court, most of them involved split votes by the commission.”

The downside that Thompson, Rhoades and other fiduciary advocates see in the agency moving ahead is a watered-down fiduciary standard as the end result.

Rhoades urged advisors to kick up their lobbying efforts.

“We’ve been involved in the fiduciary ‘debate’ for well over a decade,” Rhoades said. Wall Street’s strategy, he said, is to “seek delays and wear out the pro-fiduciary advocates. Yet, now, 2014 could well be a pivotal year. If we care about these issues, this is our time to take action in some fashion—now, not a year from now.”

Meanwhile, Back at DOL …

As for the DOL’s fiduciary redraft, Borzi noted during the mid-March Financial Services Roundtable event that a DOL fiduciary rule is needed because “just like the marketplace has evolved, our structures for monitoring and regulating the marketplace need to evolve as well.”

Since pulling its 2010 fiduciary draft, Borzi said the DOL has spent countless hours getting feedback on the plan, which included “some nuggets of constructive criticism, but most of the time it was just the same old thing: ‘Go away.’”

But Borzi said reissuing a redraft is “a No. 1 priority” for DOL because “it’s a very important” consumer protection issue. “We need to focus like a laser beam on our clients,” she said. “There is confusion about the legal standard for people who give advice.”

There’s been “a lot of talk” about how two standards—one issued by the SEC and another by DOL—“will [create] all this confusion in the marketplace,” but she stressed that “today there’s confusion in the marketplace.”

Borzi questioned why the industry is “so opposed” to DOL putting out a proposal to spark debate about an issue that needs a “conversation at the national level.”

Rep. Gwen Moore, D-Wis., a member of the House Financial Services Committee, who spoke at the FSR event, said that she agreed with Borzi about the “importance of having a strong fiduciary standard” and noted her support for DOL moving ahead on re-releasing what she called “a discussion template,” as the redrafting has “taken into consideration” the comments made earlier.

However, Moore said she still had concerns about how the proposal will be reworked to address the distinction between investment education and investment advice—an area Borzi said will be updated.

“I’m concerned that an open-ended definition of who’s a fiduciary … would provide that any information could lead to liability on the part of advisors and that this would have a chilling impact on providing education,” Moore said.

Borzi stated in her comments that DOL has “tried to be more specific [in the reproposal] about the difference between education and advice; both are important, and there are different standards that apply.” Education, she argued, “is not fiduciary in nature. Where you cross the line is a harder question, but that’s what we’ve tried to answer.”

Rep. Blaine Luetkemeyer, R-Mo., who also sits on the House Financial Services Committee and was on hand at the FSR event, noted that he was thankful that DOL pulled its initial rule proposal and warned of the rulemaking’s “unintended consequences.” He noted that he wasn’t clear on “the overabundance” of problems the DOL’s redraft is trying to solve. “I haven’t seen this evidence yet,” he said. “Are there laws in place,” he wondered, that “if enforced properly, will solve the problem?”

But Dallas Salisbury of EBRI applauded DOL for its work on the fiduciary redraft. “There clearly needs to be some change in the marketplace to rebuild trust.”