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Regulation and Compliance > Federal Regulation > SEC

‘Greater Clarity’ Needed on SEC, DOL Fiduciary Rules: Clayton

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SEC Chairman Jay Clayton said Wednesday that he believes there’s “enough overlap” in the mandates of the Commission and the Labor Department to achieve “more clarity” around a uniform fiduciary rulemaking.

“It’s clear that this [fiduciary] is an issue we all can engage on,” Clayton said Wednesday at the U.S. Chamber of Commerce in Washington. The “DOL rule is on the books, … we’re in a position where we could have different standards for the individual investor — that doesn’t seem right. I think there will be consensus among everybody involved … that the market would benefit from greater clarity here.”

(Related: SEC Chief Wants Public Input on a New Fiduciary Rule Before Starting)

During his discussion with David Hirschmann, president and CEO of Chamber’s Center for Capital Markets Competitiveness, Clayton also said that “it would be extremely disappointing if whatever direction we go [on a fiduciary rulemaking] there’s a substantial reduction in choice for the retail investors; I don’t want that choice to disappear for the Main Street investors.”

Clayton said in mid-July at the Economic Club of New York, during his first public comments, that he wants to hear from individual investors and others about whether the Commission should proceed with its own fiduciary standard for broker-dealers and investment advisors.

In late June, Clayton told lawmakers that the agency was moving ahead on a coordinated fiduciary rule with Labor, and on June 1 the agency announced that it was seeking comment on a laundry list of issues to inform “possible future actions” by the SEC on a fiduciary duty rulemaking.

SEC Commissioner Michael Piwowar told Labor in a Tuesday comment letter that the fiduciary rule is troubling because it will “extend beyond retirement accounts and will be disruptive of the broker-client relationship in general.”

Labor’s fiduciary rule “will have a dramatic impact on the provision of financial services to retail clients throughout the financial services industry,” Piwowar, a Republican, said in his response to Labor’s request for information.

While noting his “many concerns” about the rule, Piwowar pointed to two other trouble spots: The rule “is dismissive of the efficacy of conflict of interest disclosure, a view that runs contrary to decades of Commission experience; and fails sufficiently to distinguish ‘selling’ activities from ‘advice’ activities, undermining the Commission’s longstanding approach to regulation of broker-dealers and investment advisors.”

Reiterating his commitment to reining in “bad actors,” Clayton said Wednesday that “the costs to all of us of bad actors is astronomical.”

Former SEC execs, Clayton said, have warned him that during his time at the Commission he’d be “surprised about the amount of retail fraud that still goes on.”

During his first 80 days on the job, Clayton said, he has observed that “the amount of ground that’s covered by the number of employees is truly astonishing. We’re dwarfed in size by many of the institutions we regulate. … It’s an amazing amount of ground to cover with not a lot of people.”

The SEC’s budget, he added, “is a fraction of the size of some large institutions’ IT budgets.”

As for doing more with less, Clayton said that he’s “looking at where it would be most effective; …looking at where to add and shift resources,” with one area being “using data in a more effective way to target exams,” but also to help in how the agency conducts exams.

Technology can also be leveraged to be “more targeted and more effective” when it comes to enforcement, he said.

When queried by an audience member on his thoughts about the active versus passive investment debate, and whether potential regulatory measures need to be taken, Clayton said that over the last 20 years, he’s been mainly an index investor.

“I think it’s fairly paternalistic to be telling Main Street investors that indexing is the only way to get this done — that there aren’t alternatives. From my own experience, index investing has been great for me, but my best returning investments were actively managed funds.”

Non-index investments “over the course of my career did better than my index investments,” Clayton said. 

“Are there systemic issues that would be caused if we have too much investing on autopilot? That’s a very good question.”

— Check out SEC Approves FINRA Rule to Streamline Exams on ThinkAdvisor.


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