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Regulation and Compliance > Federal Regulation > SEC

SEC Needs to Move on Fiduciary Rule, Ex-SEC Chiefs Say

By Melanie Waddell

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Three former heads of the Securities and Exchange Commission agreed Tuesday that the agency needs to move forward on a fiduciary rulemaking, with two opining that the Commission may still have time to move before the Department of Labor does.

“It’s not clear to me that DOL will finish [its fiduciary rule] first,” said Harvey Pitt, the SEC Chairman from 2001 to 2003, at TD Ameritrade Institutional’s Advocacy Leadership Summit in Washington.

In a separate comment to ThinkAdvisor, Pitt said that “DOL is going to have a much harder row to hoe than it seems; they may be ahead now, but I’m not sure they’ll finish ahead.”

Once DOL proposes its rule, he continued, “the SEC may meet with them; there will be a lot of behind-the-scene discourse to try to accommodate the disparities that exist” between DOL and SEC. “We saw that in the swaps regulation with the SEC and the CFTC; they regulate the exact same conduct differently.”

Former Republican congressman Christopher Cox, who served as SEC chairman from 2005 to 2009, stated on the panel that the current vacant commissioner seats actually make for an opportune time to pass such a rule. While the “implication is that it would be harder with one less commissioner” to move forward with a fiduciary rulemaking, “the fewer [commissioners] from the standpoint of the chairman the easier it is to get your work done” as head of the agency, he said.

While Republican Commissioner Daniel Gallagher left his post last week, Democratic commissioner Luis Aguilar’s term has expired. He can, but likely will not, stay until December 2016.

“I feel very strongly the SEC needs to move forward” on a fiduciary rule and “do it now,” added former SEC Chairwoman Mary Schapiro, who tried but failed during her term from 2009 to 2013 to get a fiduciary rulemaking passed. Nonetheless, “I don’t blame DOL for not waiting for the SEC at all.” She added that she believes the SEC should “take the lead … but they haven’t.”

Schapiro added that any SEC vote on a fiduciary rulemaking is “highly likely to be a split vote.” An SEC fiduciary rule doesn’t have to “be that hard,” she continued, noting that the SEC’s Investor Advisory Committee has put forth good suggestions.

While an SEC fiduciary rulemaking “should be done,” Cox agreed, it’s hard for the agency to move ahead “because there are enormous competitive issues contending.”

Even if the DOL goes first, Cox added, there are “going to be lots of reasons” for both DOL and the SEC to “work together” on this fiduciary issue.

Added Pitt: While “it’s not clear to me that DOL will finish first,” though the department is much further along in a rulemaking than the SEC, “there are problems that can be associated” with a DOL rule, as DOL is a “cabinet” agency, and not an independent agency like the SEC.

Besides a fiduciary rulemaking, Pitt opined that a “huge issue” for the SEC to tackle is how to boost the number of investment advisor exams. When he was SEC chairman, Pitt said at the time, advisors were examined on a five-year cycle, making exams “meaningless.” Now, “it’s eleven years. There’s no way that the current sequence of exams can provide investors with comfort and confidence that’s necessary.”

SEC Chairwoman Mary Jo White stated recently that a fiduciary rulemaking as well as third-party advisor exams will be ushered in by the agency.  

The SEC is “going to proceed with rulemaking on third-party audits” of advisors, Neil Simon, vice president for government relations at the Investment Adviser Association in Washington, said during another panel discussion at the TD Ameritrade event. He encouraged attendees to “get involved in the discussion and fight.”

SEC staff, Simon added, is “hard at work” thinking up third-party audit options.

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