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David Grim & Stephen Luparello: SEC Fiduciary Formulators — The 2016 IA 25

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SEC Chairwoman Mary Jo White has been the public spokesperson championing the agency moving ahead on its own uniform fiduciary rule for advisors and brokers, but David Grim and Stephen Luparello have been toiling behind the scenes to make it happen.

White said recently that the agency is “without doubt” working on its own fiduciary rule and that Grim, head of the SEC’s Division of Investment Management, and Luparello, head of the agency’s Division of Trading & Markets, and members of their staff are discussing the “parameters of recommendations” regarding such a rule with SEC Commissioners.

Grim reiterated to lawmakers in recent remarks White’s view that a fiduciary rule is a “priority” for the agency, and that Trading & Markets and IM “are hard at work making that happen.”  

Luparello has told lawmakers that the agency continues to study whether the “benefit” of a fiduciary rulemaking can “stand up to the cost.”

But two former SEC executives have differing opinions about whether the SEC can actually pull it off. Bob Plaze, a partner at Stroock & Stroock & Lavan LLP in Washington, has said that the two divisions’ “different interests” regarding the rule’s outcome will stymie progress.

Former SEC Chairman Harvey Pitt told IA, however, that “Steve and David are excellent division directors.” Pitt said, “my sense is they will be in constant touch with the Chair and the other commissioners as they work out their differences.”

The challenge — and goal — for the divisions “is not to favor either” advisors or broker-dealers in a uniform fiduciary rulemaking, “but rather to tailor a common concept of fiduciary obligation to both professional groups, as viewed from the perspective of their customers,” Pitt said.

To the extent that there are differences, Pitt continued, White’s chief of staff, Andrew “Buddy” Donohue, a former IM director himself, “is uniquely well-positioned to make certain that Chair White’s vision of the rule will guide both divisions,” he said.

White said last May when Donohue rejoined the agency that he would help shape a fiduciary rule.

While SEC divisions can often “come at the same problem from different perspectives,” Pitt continued, the SEC’s “staff is incredibly adept at working through those different perspectives and coming up with a smart product.”

What’s challenging about crafting a fiduciary rulemaking, he said, is that advisors “have always been subject to true fiduciary standards, and BDs have not.”

Most investors, he maintained, “view their securities professionals as owing the same obligation to them — namely, to put the customer first. And yet, in the absence of a formal fiduciary obligation, it isn’t clear that the industry necessarily views the matter the same way. That is part of the reasoning behind the need for a so-called ‘uniform’ fiduciary standard.”

Added Pitt: “The truth is, however, that the two professionals don’t function exactly the same, and so there is a need to tailor a ‘uniform’ fiduciary standard to each context.”

— See the full 2016 IA 25 in the May issue of Investment Advisor, and find ongoing coverage of the honorees, including extended profiles, all month on the IA 25 homepage.