The finance industry may get a fresh opportunity to chip away at an Obama-era rule that cracked down on Wall Street conflicts of interest, as the Securities and Exchange Commission is considering reviewing the responsibilities that brokers have to their clients.
The SEC’s first step could be seeking feedback on what’s known as a fiduciary duty — the requirement that financial professionals offering investment advice put their customers’ interests ahead of their own, said two people with knowledge of the matter who asked not to be named because the agency hasn’t announced its plans.
The SEC’s efforts would be significant in deciding the fate of a rule passed last year by the Labor Department that imposed a fiduciary obligation on brokers who handle retirement accounts. Despite Trump administration efforts to slow it down, Labor Secretary Alexander Acosta disappointed financial firms this week by saying the bulk of the rule would take effect as scheduled on June 9.
SEC spokeswoman Judith Burns declined to comment.
The Labor Department regulation was controversial from the start. Obama administration officials contended it was needed to eliminate biased financial advice that costs consumers billions of dollars annually in high fees and commissions.
But the finance industry countered that it would prompt firms to drop clients with small amounts of savings and limit customers’ investment options. Wall Street has long urged the SEC to take up the issue, with some finance executives anticipating that any regulation the agency passes would apply to a broader swath of investment accounts and be less onerous than the Labor Department rule.
Donald Trump set his sights on the fiduciary rule just weeks into his presidency by signing a February executive order that led to a 60-day delay of its implementation. While the industry hoped Trump’s action would lead to a further halt, or even a scrapping of the regulation, Acosta said on May 22 that his department had no “principled legal basis” to postpone it.
Prior to the Labor Department regulation, brokers only had to adhere to a suitability requirement, meaning investments had to fit a clients’ needs and risk tolerance. The tougher fiduciary standard, which will apply to brokers who handle the trillions of dollars held in Individual Retirement Accounts and 401(k) plans, makes it easier for clients to sue over misleading investment advice.
Former SEC Chair Mary Jo White, who stepped down at the end of the Obama administration, repeatedly said she planned to take up the fiduciary requirement, but made little progress amid agency infighting. SEC Chairman Jay Clayton, the former Wall Street lawyer appointed by Trump, hasn’t publicly discussed his views on the issue.
Clayton faces growing pressure from Republicans in Congress to do something on the fiduciary rule, especially now that the Department of Labor has decided against a further delay. Lawmakers expressed frustration after Acosta’s announcement this week and have called on the SEC to step in.
“This issue needs the expertise of the SEC going forward,” said Representative Ann Wagner, a Missouri Republican. “While I greatly respect the rule of law, I am deeply disappointed that the fiduciary rule is not being delayed further.”
Acosta announced his agency’s regulation would take effect next month in a Wall Street Journal opinion piece. In the article, he said he hoped the SEC would be a “full participant” in a review of whether to revise the regulation, adding that it has “critical expertise in this area.”
— Check out BD Stocks Feel Bite as DOL Fiduciary Deadline Nears on ThinkAdvisor.