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Practice Management > Compensation and Fees

Sen. Shelby, NY Comptroller Enter Fiduciary Debate

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Senate Banking Committee Chairman Richard Shelby, R-Ala., said Wednesday his committee would consider holding a hearing on the Department of Labor’s redraft of its rule to amend the definition of fiduciary on retirement accounts. He also said he would be “reluctant” to support a user-fees bill to boost the number of advisor exams.

“We’ll look at it,” Shelby told reporters after his remarks at the U.S. Chamber of Commerce’s Capital Markets Summit, when asked if his committee would hold a hearing on DOL’s plan to amend the definition of fiduciary under the Employee Retirement Income Security Act.

The same day, New York City Comptroller Scott Stringer announced that he would push for a state law requiring financial advisors to disclose whether they put their own financial interests above those of their clients. He also released a new report examining the history of the fiduciary standard and voiced his support for enacting a fiduciary standard nationwide.

Labor Secretary Thomas Perez, in comments at the Capital Markets Summit in Washington on Wednesday, said the DOL fiduciary redraft will be released “in the not-too-distant future.”

As to whether brokers should be held to a fiduciary standard, Shelby told reporters that “if someone is handling my money, they have a relationship of trust, fiduciary duty.” He questioned whether such a duty could “be defined by regulation or statute or should that just be a relationship. That’s part of the debate.”

Shelby was clear, however, on what he would not support: a bill allowing the Securities and Exchange Commission to collect user fees from advisors to help boost the number of advisor exams. “I’d be reluctant to support” any user-fee legislation, Shelby told reporters, stating that user fees have been a “form of attack.”

The Senate Banking Committee, Shelby said, will “mainly” focus this year on Dodd-Frank, and reining in ”some of the areas that we think are unnecessary, onerous,” as well as looking at whether the Federal Reserve should be “audited.”

SEC Chairwoman Mary Jo White said March 17 at the Securities Industry and Financial Markets Association’s Legal and Compliance Seminar that she supports the agency pressing ahead with a fiduciary rulemaking, and that the agency also needs “to move to a program of third-party compliance exams for advisors.”

White told members of the House Financial Services Committee Tuesday that while third-party exams are “not an optimal place to go,” the agency needs to “complement” its advisor exams.

Industry trade groups have been pushing for bipartisan support in the Senate for a user-fees bill, but Neil Simon, vice president for government relations at the Investment Adviser Association in Washington, said in early March that he feared third-party exams will “gain some traction because Congress is unlikely to give the SEC the money it needs to properly staff up” its Office of Compliance Inspections and Examinations. Simon also conceded that user-fees legislation is “just not gaining bipartisan support.”

Perez, who also spoke at the Summit, said that he couldn’t give a “precise date” for when DOL’s fiduciary redraft would be released by  the Office of Management and Budget, but looked forward to further comments after the proposal’s release.

The proposal will not “damn commissions,” will have “a very robust economic analysis,” will contain proposed prohibited transaction exemptions (PTEs) and will “draw a line between education and advice,” Perez said.

The proposed rule “seeks to draw lines between advice and those purchasing items,” Perez continued, stating that he looked forward to feedback on whether the PTEs have “drawn the line in the right place.”

The chamber said in early March that it is prepared to use  “every tool” it can — including lobbying Congress — to voice its concerns about the DOL’s redraft.

Stringer said announcing his plan to enact a state law requiring that “billions of dollars in savings are lost each year because of hidden fees and conflicted financial advice.” While the nation needs ”a uniform, national fiduciary standard,” he continued ”we can’t wait to give New Yorkers the common sense reforms they need to make informed investment choices. This new law will ensure that New Yorkers know whether the investment advice they receive is in their best interest.”

Under Stringer’s plan, advisors operating under the suitability standard in New York would have to state the following at the outset of any financial relationship:

I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks and expected returns for you.

— Check out Fiduciary Standard Should Be Based on How Brokerage Industry Works by Bob Clark on ThinkAdvisor.


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