Debate about the Securities and Exchange Commission’s advice standards proposal hit full throttle in mid-June as the Commission held its first town hall in Altanta, and the agency’s Investor Advisory Committee followed-up with its own meeting in the Georgia capital.

While still in its formative stages, SEC Chairman Jay Clayton told Senate lawmakers in early June that while the agency is going to “take at least the 90 days” for comments on the three-pronged advice standards package, until Aug. 7, he’s “not going to take forever. This [fiduciary] issue has been out there a long time, and I think it’s time to bring a focal point for the many regulators in this space.”

We’ll have to see if the Aug. 7 deadline sticks, as consumer groups are urging Clayton to extend the comment deadline for the regulator’s “sweeping” Regulation Best Interest for brokers and Customer Relationship Summary, or Form CRS, to allow enough time to test the new disclosures on investors and report the results.

Barbara Roper, director of investor protection for the Consumer Federation of America, one of the groups that asked Clayton for an extended comment period, told me at press time in mid-June that she had not received a formal response from the Commission.

“The only informal response I’m aware of is that the SEC routinely accepts comments after the comment deadline has passed,” Roper said. “I think the key issue here is not whether the Aug. 7 deadline is extended, but that the SEC should commit to making the results of the testing public, and providing an opportunity for stakeholders to comment on those results, before taking any action on either Form CRS or Reg BI.”

Broker Behavior Will Change Under Reg BI Clayton laid out for attendees how he sees brokers’ behavior changing under Reg BI at the town hall, dubbed “Investing in America, the SEC Comes to You,” which was held at Georgia State University College of Law.

(The SEC is planning to hold other town halls to discuss its advice standards proposal in Denver, Houston and Miami.)

Under the suitability standard that brokers must follow, “if you come up with two investments that are suitable for your client, there are people who will argue that you’re allowed to look at which investment makes you, the broker, more money and put the client into that investment,” Clayton relayed.

“Under our new standard, you [the broker] will not be allowed to do that. You cannot put your interests ahead of your clients’ interest,” he continued, adding that the agency is “going to add to that. This is a proposal … we all have views, we want your views.”

The securities regulator, under its conduct standard for brokers, is “going to require policies and procedures so that the exercise the broker-dealer goes through to get to that place, where they’re going to make a recommendation, also reflects a duty of care that is enhanced,” Clayton said.

Is a ‘Uniform Fiduciary Standard’ Likely? Industry officials debated the likelihood that a “uniform fiduciary standard” for brokers and advisors would ever see the light of day during the mid-June meeting of the SEC’s Investment Advisory Committee, which was held in Atlanta a day after the SEC’s town hall.

CFA’s Roper, a member of the SEC committee, asked a panel at the meeting if they would “be comfortable, since we have the apparent agreement that this [Reg BI] is intended to be, in essence, a fiduciary standard, if the commission called it a fiduciary standard?”

Karen Barr, president and CEO of the Investment Adviser Association, responded that “to me, a fiduciary standard means you’re a fiduciary throughout the entire relationship, so I don’t think this [Reg BI] is a fiduciary standard. I do think [Reg BI] draws on fiduciary principles and it can get to a place where it’s as robust — [having] the core principles as a fiduciary standard.”

Ira Hammerman, general counsel for the Securities Industry and Financial Markets Association, responded that “We started down this journey calling for a uniform fiduciary standard. I’ll just assume that people a lot smarter than me in putting together this voluminous 1,000 page [SEC advice standards] proposal, in weighing all the pros and cons, decided that that was a bridge too far. We want to see something done here.”

At the end of the day, Hammerman continued, “there are strengths and weaknesses to both models — at the broker-dealer level, you’ve got FINRA kicking the tires, doing exams, … there’s no similar analogue on the investment advisor side even with the package of proposals put forward by the SEC.”

While there are differences in the broker and advisor models, he added, “I think we can achieve high standards for both.”

Hammerman also agreed with other comments made throughout the meeting that the SEC needs to issue “clear guidance on what’s meant by best-interest” in the Commission’s proposal. David Certner, legislative counsel for AARP, agreed in his comments at the meeting that while AARP “appreciates that the SEC is trying to impose a higher standard than suitability” for brokers under its Reg BI, the securities regulator “does not impose a fiduciary standard [on brokers] and does not define what best-interest means.”

Certner stated on a mid-June call with reporters before his testimony at the Investor Advisory Committee meeting, that as it stands now, it’s “not clear what standard it is [the SEC] is trying to adopt. It’s difficult to understand what they mean by these terms. Best-interest is a fiduciary type of standard,” Certner said, but if the term is left “so vague,” no one — practitioners or investors — will understand what it means.

“We need a lot more clarity in what the standard means,” he continued. “It has to be clear[er] when people are acting in the ‘best interest’ and when they are not.” Vague standards, he added, opens “the door to litigation, and the standard will be set by the lawsuits” that will be brought.

Demise of DOL Fiduciary Rule? Meanwhile, as to the demise of the Labor Department’s fiduciary rule, the Department of Justice did not petition the Supreme Court on June 14 to challenge the U.S. Court of Appeals for the 5th Circuit’s decision to vacate Labor’s fiduciary rule. Industry officials say that the DOJ’s decision, while not surprising, further signals the rule’s demise.

Labor’s fiduciary rule will officially die on the vine once the 5th Circuit issues its mandate vacating the rule. As of press time in mid-June the 5th Circuit had not done so. DOJ had 90-days from when the 5th Circuit issued its mandate to vacate the fiduciary rule on March 15, to petition the Supreme Court to review the 5th Circuit ruling.

A legal observer said that the “DOJ did not file a petition for certiorari [by June 14], but the mandate itself has not yet been issued.” This could mean that DOJ still has time to petition the Supreme Court.

Industry officials are opining Labor’s next fiduciary-related move.

“DOL will closely monitor developments at the Securities and Exchange Commission” and the securities regulator’s advice standards proposal, Steve Saxon, an attorney specializing in the Employee Retirement Income Security Act with the Groom Law Group in Washington, told me on June 15.

“Any expectation that SEC guidance [in this fiduciary realm] will be forthcoming by the end of the year is overly optimistic,” Saxon said. “I don’t think DOL will come out with guidance or exemptive relief on its own motion, at least in the near future.”

Washington Bureau Chief Melanie Waddell can be reached at mwaddell@alm.com.