Securities and Exchange Commission Chairwoman Mary Jo White said Tuesday that the agency should “act” on a uniform fiduciary standard for brokers and investment advisors, one that should be “codified principles-based and rooted in the current fiduciary standard for investment advisors,” and that the agency should also move forward on third-party exams for advisors.
“My own personal view, which I think you share and many others share, is that the SEC should act under Section 913 of Dodd-Frank to implement a uniform fiduciary duty for broker-dealers and investment advisors” where the standard is to act in the best interest of clients when giving advice to retail investors, White said during a question and answer session with Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association at SIFMA’s Legal and Compliance Seminar in Phoenix. “That comes right out of Dodd-Frank.”
Said White: “That’s where you start, in my view,” adding, however that “there are complexities and challenges that come with such a rulemaking.”
Three such challenges include “how do you define that standard; what’s required under that standard; and how do you ensure compliance and enforcement of that standard,” White said.
White said that her “view going in” is that such a rulemaking should be a “codified principles-based standard rooted in the current fiduciary standard for investment advisors,” acknowledging there are “lots of issues there” and that the SEC has to “give clear guidance on how [such a rulemaking] would apply, [and] what it would include.”
Citing the lack of adequate funding from Congress to boost the number of investment advisor exams, White said that the agency needs “to move to a program of third-party compliance exams for advisors.” She said, however, that the SEC would continue to press Congress for more funding for the agency.
Such third-party exams “should be part of this undertaking,” she said, adding that the agency would need to determine “who should do” such exams and “what are the criteria” for such exams.
White said that her “next steps” would be to have “in-depth” discussions with the SEC commissioners, “regarding all aspects of this” as the SEC staff “proceeds to develop a recommendation for a uniform fiduciary duty and third-party program.” White stressed that third-party exams would not replace advisor exams performed by the SEC’s Office of Compliance Inspections and Examinations.
“There will be lots of questions,” White said, “It’s not an easy road; it’s not a quick road.”
Regarding the Department of Labor’s redraft of its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act, White said that “DOL is addressing very important responsibilities in their mandate for retirement accounts,” adding that SEC staff provided extensive technical support to DOL,” including the “impact on investors of potentially changes” to the definition of fiduciary under ERISA.
The SEC and DOL “have separate mandates,” she said. “At the end of the day we have to do what we think is right under our mandates.”
Bentsen told ThinkAdvisor after the Q&A that “it’s good to hear she [White] supports moving forward with the SEC” fiduciary rulemaking. “Promulgating a [fiduciary] rule is something that we’ve been in favor of.”
With White’s comments, “obviously [such a rulemaking] is elevated up” at the agency.
Neil Simon, vice president for government relations at the Investment Adviser Association, said that IAA is “encouraged by Chair White’s remarks indicating that implementation of a uniform fiduciary standard is a ‘huge’ personal priority for her and that she recognizes that it must be principles-based and rooted in the Advisers Act.”
Simon said that the IAA “is actively considering various concepts to enhance the SEC’s oversight of the advisory profession, including possible roles for third parties.” However, he continued, IAA is “concerned about the third-party examiner concept suggested by [SEC] Commissioner [Daniel] Gallagher due to unanswered questions, including the standards, scope and frequency of any third-party reviews; the qualification process and oversight for third parties; and the cost to advisors.”
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