While many in the industry are applauding Securities and Exchange Commission Chairwoman Mary Jo White’s recent declaration that she will push to ensure the agency extends a fiduciary rule for brokers, concerns remain that such a rule will be a long time in the making—and may not even happen at all.
“We’ve been here before,” Barbara Roper, director of investor protection for the Consumer Federation of America, told Investment Advisor, recalling former SEC Chairwoman Mary Schapiro’s “similar commitment” to ensuring in 2009 that the securities regulator would indeed move forward with a fiduciary rule. But like White, Schapiro faced a polarized commission and wasn’t able to secure the three votes needed to pass such a rule.
White conceded at a late March hearing held by the House Financial Services Committee that the agency is at the “beginning” of its fiduciary rule process, and that such a rule is “still a ‘whether’ question; I am one of five votes on the commission.” However, she said that the release of the Department of Labor’s redraft of its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act will likely “proceed.”
White said in mid-March 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 her personal view “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.
Said White: “That comes right out of Dodd-Frank.”
White said that such a rule 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.
But CFA’s Roper said that the “real question” in seeing a fiduciary rule through to fruition will be whether “on a polarized commission” White can find the three votes needed to pass a “strong, pro-investor rule and whether she can find a way to do that under the auspices of Section 913.”
Richard Ketchum, chairman and CEO of the Financial Industry Regulatory Authority, said at the SIFMA event that he’s confident White can wrestle a uniform fiduciary rulemaking to a resolution. “Nothing hard is easy; nothing worth doing is easy,” Ketchum said during a question-and-answer session with Ira Hammerman, SIFMA’s executive vice president and general counsel. Ketchum noted his “tremendous respect” for the “range of concerns” expressed by some SEC commissioners regarding a fiduciary rule for brokers, but said he has “great confidence” in White being able to move the rulemaking forward. “I’m confident that each of the commissioners recognizes the importance of the SEC playing a central role in defining a best interest of the customer standard for the industry.”
Ketchum also noted his preference for the SEC to set a single, consistent fiduciary standard that emanates from the SEC “across all vehicles that exist for the individual investor.”
Roper added that White’s strong support for a fiduciary rulemaking “is an important step forward,” and that while getting to a rule is “possible,” it will also be challenging. She said the Consumer Federation looks forward to working with White, commission staff and the other commissioners “to bring that about.”
White acknowledged at the SIFMA event the complexities and challenges that come with such a rulemaking, including:
How to define a standard
What’s required under that standard
How to ensure compliance and enforcement of that standard
White said that her “view going in” is that such a rulemaking should be a “principles-based standard rooted in the current fiduciary standard for investment advisors.” She acknowledged there may be many issues with doing so, but said the SEC must give “clear guidance” on how such a rulemaking would apply and what it would include.
Further, she said third-party exams “should be part of this undertaking,” adding that the agency would need to determine “who should do” the exams and “what are the criteria” for the exams.