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Regulation and Compliance > Federal Regulation > SEC

4 Regulators Bringing a New Era of Advice: The 2016 IA 25 Slideshow

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The world in which financial advisors do business has become increasingly regulated, even more so thanks to folks like Bernie Madoff (an IA 25 member back in 2009, because not all influences are positive). Regulators and politicians continue to have a tremendous influence on the advisory business. For example, we included William Donaldson, former SEC chief, and Michael Oxley (as in Sarbanes-Oxley) in our very first IA 25. Former SEC Chief Mary Shapiro has appeared on the list seven times since 2006, when she was named head of FINRA’s predecessor, the National Association of Securities Dealers.

With the release of DOL’s rule to change the way advisors deliver retirement advice, we couldn’t ignore including Secretary Tom Perez among this year’s most influential people in and around the industry. In keeping with this year’s goal to recognize some of the lesser known influencers, though, we decided not to focus on big names like current SEC Chairwoman Mary Jo White (whose influence hasn’t been ignored; we recognized her in 2013 and 2014).

Following are some of the regulators who are reworking the advisory landscape.

Tom Perez, Department of Labor

Tom Perez, Department of Labor

For good or ill, Labor Secretary Thomas Perez will be credited with forever changing the nature of retirement advice.

It took six years to finalize a rule to redefine fiduciary under the Employee Retirement Income Security Act; Perez stepped in three years into the process and brought the rule to the finish line.

While support from the Obama Administration was viewed as a game changer in cementing the final rule’s completion, it was Perez’s personal commitment and willingness to listen to concerns from industry as well as political detractors on Capitol Hill that sealed the deal. “He went on a listening campaign,” Barbara Roper, director of investor protection for the Consumer Federation of America, said. “That helped him understand the concerns of rule skeptics, and to distinguish those concerns from the efforts of rule opponents who were never going to be won over.”

Roper, who supports the rule, said that Perez “understood where the compromise lay that would produce a rule that would satisfy supporters and skeptics alike.”

Those skeptics have criticized the rule from start to finish. Ken Bentsen, chairman and CEO of the Securities Industry and Financial Markets Association, said after the final rule’s release that he was most concerned with “the nature by which the government advocated for the rule,” and that the rule premise was based on that notion that “the brokerage industry’s business model ‘rests on bilking’ their clients.”

David Grim (left) and Stephen Luparello (right), SEC

David Grim (left) and Stephen Luparello, Securities and Exchange Commission

Now that the DOL’s long-awaited (and still contested) fiduciary rule has finally arrived, the SEC is gearing up to follow suit. SEC Chairwoman Mary Jo White has been the public spokesperson for such a rule, and has said that the agency is “without doubt” working on its own fiduciary rule. However, it’s Grim and Luparello, as heads of the agency’s Divisions of Investment Management and Trading & Markets, who are spearheading the development of a proposal.

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.”

White has said that an SEC fiduciar rule would likely not mirror DOL’s fiduciary rule to amend the definition of fiduciary under ERISA. Rules “don’t always land identically; you try to make them land identically if you can, but [the SEC and DOL] are separate agencies, [with] separate statutory mandates,” she told lawmakers in March.

Jane Jarcho, Securities and Exchange Commission

Jane Jarcho, Securities and Exchange Commission

Elsewhere in the halls of the SEC, Jarcho is responsible for leading the charge to increase advisor exams.

She’s headed the agency’s advisor/investment company exam program since 2013, and was named deputy director in February. Since then, exams have increased over 27%, with particular focus on cybersecurity, never-before-examined advisors and companies, alternative mutual funds, fixed-income funds and retirement accounts.

The issue of using third-party audits to examine advisors is still undecided. Jarcho said at the Securities and Exchange Commission’s annual investment advisor compliance outreach summit in mid-April that “a lot of thinking [about] getting the scope [of such audits] right is being put into this proposal; There’s a lot of discussion on what the scope should be.”


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