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Why SEC Fiduciary Rule May Be ‘Unattainable’

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The Securities and Exchange Commission delivering on a uniform fiduciary rule for brokers and advisors is likely an “unattainable” goal, as the two divisions charged with writing the rule have “different interests” regarding the rule’s outcome and the agency’s commissioners disagree on whether such a rule is necessary, Bob Plaze, a former SEC executive, said Thursday.

Plaze, a partner at Stroock & Stroock & Lavan LLP in Washington, who spent 30 years at the commission, said at the Investment Adviser Association’s annual compliance conference in Washington, that while the SEC is “working on” a fiduciary rule, the two divisions — trading and markets and investment management — view “the world of rules very differently.” He noted that the trading and markets division believes a fiduciary rulemaking would threaten its oversight of broker-dealers.

But David Grim, director of the SEC’s IM division, reiterated during luncheon remarks at the IAA event SEC Chairwoman Mary Jo White’s view that a fiduciary rule is a ”priority” for the agency, adding that White ”thinks [a fiduciary rule] is the right answer and wants to make it happen.” Trading and markets and IM, Grim continued, “are hard at work making that happen.”  

The Department of Labor has had a much “easier time” moving forward with its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act, said Plaze, because it has a “single administrator,” unlike the SEC’s five-person commission.

Neil Simon, vice president for government relations at IAA, agreed Thursday that a fiduciary rulemaking would be “very difficult” to get through the agency. Any fiduciary rule would likely face a 3-2 vote, Simon said, given that the current SEC commissioner Michael Piwowar, a Republican, as well as incoming commissioner Hester Peirce, also Republican, would be unlikely to vote in favor of the rule.

Simon said that he believes both Peirce and Lisa Fairfax, a Democrat, will “sail through” full Senate confirmation. The Senate Banking Committee is holding confirmation hearings for both on March 15.

Simon added that Section 913 of Dodd-Frank, which gave the SEC the authority to move ahead with a fiduciary rulemaking, is another stumbling block as it is “full of internal contradictions,” because it allows “hat switching” of brokers but then requires that the SEC create a fiduciary rule for brokers that is “no less stringent” than the one advisors adhere to.

“It’s very hard to reconcile these two things.”

— Check out More Revelations From Anti-DOL Fiduciary Rule Crowd on ThinkAdvisor.


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