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Roper Urges SEC Chief to Move on Fiduciary With Split Vote

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Securities and Exchange Commission Chairwoman Mary Jo White views moving forward on a uniform fiduciary rule for brokers and advisors as “a personal priority for her,” and she has exhibited the conviction to move ahead on similar controversial rulemakings — like money market and credit rating agency reforms — with a split 3-2 vote, says Barbara Roper, director of investor protection for the Consumer Federation of America.

During a Thursday conference call, Roper said that in her personal discussions with White regarding a uniform fiduciary rulemaking, White “gives every impression that this [rulemaking] is also a personal priority for her.”

The two Democratic commissioners, Luis Aguilar and Kara Stein, have “voiced their support for a strong uniform fiduciary standard,” Roper said during the call, held by the Institute for the Fiduciary Standard, while the two Republican commissioners, Daniel Gallagher and Michael Piwowar, have “questioned the need” for a fiduciary rulemaking.

While the division within the commission makes White’s decision to press ahead with a fiduciary rulemaking “more challenging,” Roper said, it could also be viewed “as liberating” if she does.

“If the Republican commissioners’ view is, and remains, ‘Just say no,’ the chair can and should view herself freed from having to negotiate to win their support by watering down the standards,” Roper said. “She’d have to have the courage to take a 3-2 vote in support of a fiduciary standard, [which] she showed with [the recent] 3-2 vote in support of strengthening credit rating agency rules.” 

Moving forward on a fiduciary rule should not “be a partisan issue,” Roper continued. A fiduciary rulemaking is “important enough that a 3-2 vote would be justified if that’s what it takes to move forward.”

Roper argued that a fiduciary rule would fix the problem that the SEC created. “The problem, in its starkest terms, is that investors who are in the market for investment advice are being actively deceived, and SEC policy permits that deception,” Roper said.

Brokers and investment advisors “both call themselves advisors — they both offer investment planning and retirement planning that are or should be advisory in nature and they both market themselves as their primary service being investment advice,” she continued. “As a result, they are indistinguishable to the investing public. But brokers aren’t, in fact, advisors, at least not legally. They are salespeople” held to a suitability standard.

Said Roper: “The problem is that a fiduciary duty, an obligation to act in the best interest of the customer, is in and of itself what distinguishes advice from a sales pitch. By allowing brokers to offer ‘advice’ without requiring that brokers act in their clients’ best interest, the SEC is permitting them to deceive investors about the nature of the services they are offering.” Indeed, Dennis Kelleher, president and CEO of Better Markets, added on the call that the “overriding importance” is to not get lost in the details, but to have both the SEC and the Department of Labor propose fiduciary rules and open them to public comment. “What is the industry so afraid of that they don’t want a proposed rule?” he asked. “All we’re talking about here is having rules proposed for comment.”

The worst-case scenario is that the SEC adopts a rule that “pretends to be a fiduciary standard but that’s really a suitability [standard] with a few added disclosures,” Roper said. “All of the fiduciary advocates would oppose” such a rulemaking, likely leading to “inaction rather than adoption” of such a rule by the commission.

The other areas where potential problems could occur are defining “ongoing duty of care” as well as how to ensure fiduciary recommendations within a limited menu of products.

“Big firms that have a broad array of product offerings will adjust” to a fiduciary standard, Roper said. A fiduciary standard “is going to be the most difficult to adapt to for small firms that offer a limited menu, typically the insurance agent who calls himself a financial planner and sells a few variable annuities and maybe some mutual funds and that’s the scope of his retirement planning.”

As to ongoing duty of care, the Dodd-Frank Act, which gave the SEC the authority to write a fiduciary rule but didn’t mandate one, includes language stating there is “no ‘ongoing’ fiduciary duty after the advice has been rendered,” Roper said. “What does that mean? Right now investors bring successful claims against brokers for violation of fiduciary duty on the grounds that they created a reasonable expectation that there would be ongoing oversight. Are we going to lose that under a bad fiduciary rule?”

Check out What’s Next for the Fiduciary Standard? on ThinkAdvisor.


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