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SEC’s Gallagher, Aguilar to Depart as Agency Crafts Fiduciary ‘Term Sheet’

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While the impending departures of Daniel Gallagher and Luis Aguilar, two commissioners at the Securities and Exchange Commission, will not hinder progress on the agency’s fiduciary rulemaking, the two commissioners are planning to exit as the agency drafts a term sheet on what such a rule should look like.

Aguilar, a Democrat, has served as a commissioner for seven years, while Bloomberg recently reported that Gallagher, a Republican, who was sworn in as a commissioner in 2011, is resigning his post after four years.

Gallagher’s five-year term was set to expire in 2016. A spokesperson for Gallagher’s office said that he is not commenting on the news reports of his planned departure.

Bloomberg reported that Gallagher, 42, plans to remain on the five-member commission until a successor is confirmed—a process that could take months.

Aguilar’s term expires on June 5. A spokesperson in Aguilar’s office said that while Aguilar “has indicated that he’s not seeking another term, he has no current plans to leave.”

Both potential departures come as the agency drafts a “term sheet” on its uniform fiduciary rule for brokers and advisors, according to David Tittsworth, the former president and CEO of the Investment Adviser Association, who starts his new position at Ropes & Gray on June 1.

“Much work,” however, remains on the term sheet before it’s ready for SEC action, Tittsworth said.

While Aguilar, 61, and Gallagher’s departures later this year will certainly change “the composition” of the SEC, Tittsworth said, “in the near term, it seems unlikely that Commissioner Gallagher’s unexpected resignation and the end of Commissioner Aguilar’s term next month ‎will change the calculus of a fiduciary rulemaking” under Section 913 of the Dodd-Frank Act. 

That being said, any votes on such a fiduciary rulemaking will not occur until after their replacements are in place, he added.

Published reports say that replacements being considered for Aguilar’s spot include former SEC attorneys Keir Gumbs and Philip Khinda. Gumbs is a partner at law firm Covington & Burling in Washington, and Khinda is co-head of the securities enforcement practice at Steptoe & Johnson.

SEC Chairwoman Mary Jo White said on March 17 that she supports the agency moving forward with a uniform fiduciary rule for brokers and investment advisors, one that’s “codified, principles-based and rooted in the current fiduciary standard for investment advisors.” However, she then told Congress a little over a week later that the agency was just getting started on such a rulemaking.

One “‘convenience’ of having both Aguilar and Gallagher leave at the same time is it makes it easier for Congress to approve a Democrat and a Republican at the same time,” notes Duane Thompson, senior policy analyst at fi360. That “keeps parity and avoids deadlock” at the Commission.

“If Aguilar left and Gallagher didn’t, there would possibly be a 2-2 deadlock on a fiduciary rule vote” during White’s term as chair, Thompson said.

Aguilar, a “very strong” proponent of moving ahead with a fiduciary rulemaking, could stay through the end of this Congress, Thompson adds. “Not knowing who will replace [Aguilar] will be a loss for the pro-fiduciary camp.”

As to Gallagher, meanwhile, a very outspoken opponent of the agency moving forward with a fiduciary rule, “you might think he would have wanted to keep the bully pulpit for another year, and also to work against a fiduciary rule if he thought it a low priority,” Thompson adds. “His departure is a bit of a surprise.” 

Gallagher has also complained that the SEC has “lost its way” by focusing too much time on Dodd-Frank mandated rules.

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