Two Securities and Exchange Commission officials went toe to toe Tuesday on whether the agency’s advice-standards package waters down the fiduciary standard for investment advisors.
During an oversight hearing held by the House Financial Services Committee — in which the chairman and commissioners were present — Rep. Carolyn Maloney, D-N.Y, probed Commissioner Robert Jackson, a Democrat, on whether he believes the reinterpretation of the Investment Advisers Act of 1940, which was passed along with Reg BI, “weakens the advisor fiduciary standard and increases risks for retail investors.”
Jackson responded that he dissented on June 5 to passing the four-pronged advice-standards package.
“The reason is very straightforward: My own view is that the law in the United States should be clear, that when there’s a conflict between an ordinary American investor and their financial advisor, the investor comes first,” Jackson said. “I think we should be unambiguous in all that we do in our work. And the rules that we adopted, including the interpretation you just mentioned, had instead a muddled standard that has to do with a balance between the various interests.”
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Maloney then asked: “How do we correct this?”
Jackson responded that Section 913 of the Dodd-Frank Act allows the SEC “to set a uniform and strong standard with respect to investment advice in this country. I continue to think that’s an approach that we should give more consideration to.”
Jackson said he looks forward to seeing “how the package we’ve adopted plays out in the marketplace and whether we actually need to be much stronger in this area.”
Chairman Jay Clayton defended the agency’s Regulation Best Interest and its accompanying advisor standards during a question-and-answer session with Rep. Bill Huizenga, R-Mich.
“One of my colleagues said that you watered down the fiduciary duty as you moved this [advice-standards] package forward. Is that true?” Huizenga asked Clayton.
“No. It’s not true,” Clayton responded. “On Regulation Best Interest, the obligations broker-dealers owe their retail clients — they have an overarching obligation that they can’t put their interests ahead of the clients.’ We have a clear disclosure obligation — they have to say how they make their money. We have a clear care obligation — you have to know your client. We have a conflict mitigation obligation.”