Administration big: Single fiduciary standard needed

Wolin says many investors don't know if they're dealing with an investment adviser or broker

Apr 19, 2011 @ 3:02 pm

By Mark Schoeff Jr.

Treasury official gives seal of approval to universal standard of care (Bloomberg News)
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Treasury official gives seal of approval to universal standard of care (Bloomberg News)

Deputy Treasury Secretary Neal Wolin reiterated Obama administration support for a universal fiduciary duty for retail investment advice. But Mr. Wolin, speaking at an event in Washington on Tuesday, stopped short of urging the Securities and Exchange Commission to move ahead with a regulation.

The Dodd-Frank financial reform law authorizes the agency to promulgate a fiduciary-duty regulation, which would subject broker dealers to the same standard of care that investment advisers must meet — that is, acting in the best interests of their clients.

But an SEC staff report to Congress recommending that the commission issue a fiduciary-duty rule drew dissent from two Republican commissioners — Kathleen Casey and Troy Paredes — who said that it lacked sufficient economic analysis.

Republicans on the House Financial Services Committee also have urged the SEC not to continue work on a fiduciary regulation until it can better support the report's conclusion.

The commission has delayed consideration of a fiduciary rule, which was to have been issued this spring, until later in the year.

Since the SEC is an “independent agency,” Mr. Wolin said, it would be “inappropriate” for the Obama administration to urge the regulator to speed up its timeline. But he did endorse a fiduciary rule.

“The basic idea that whether you're seeking financial advice from a broker-dealer on the one hand or an investment adviser on the other hand — that they're held to the same fiduciary standard in how they engage with you is important,” Mr. Wolin said during a Q&A session after a speech at The Pew Charitable Trusts. “Most Americans, they don't know whether they're talking to an investment adviser or a broker-dealer — and in many cases, the same person is acting as one or the other.”

Fiduciary advocates are pushing the SEC to follow through with a rule. Opponents such as the insurance industry caution that a universal fiduciary standard would increase regulatory costs on broker-dealers that would be passed on to consumers and potentially price middle-income Americans out of the investment market.

The differing viewpoints are likely to be aired in a House Financial Services Committee hearing this spring on the SEC's fiduciary report.

Mr. Wolin used his speech to respond to criticisms from Republicans and Wall Street that Dodd-Frank implementation is proceeding too rapidly.

“Although there may be reasonable debate about the substance of Dodd-Frank implementation work, there is no question that regulators have been implementing the statute in a careful, considered, serious manner,” Mr. Wolin said.

Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, countered that federal agencies are “rushing sweeping regulations into place” with regulatory comment periods that are sometimes only 30 days long.

“At the current breakneck pace, it is difficult for individual firms — especially small businesses — and the public at large to meaningfully participate and offer their insights and observations,” Mr. Bachus said in a statement.

Mr. Wolin also implicitly accused Republicans of trying to stop Dodd-Frank by denying adequate funding to the regulators.

“The strategy of some critics to defund enforcement or implementation is part of a larger strategy to undermine the statute and weaken the comprehensive reforms it puts in place,” Mr. Wolin said. “We cannot afford to let that happen.”

In the continuing resolution that Congress approved last week to fund the government through Sept. 30, the SEC received a $74 million increase in its budget over its fiscal 2010 level — far less than the agency contends it needs but more than the substantial cut it was scheduled to get under an earlier Republican bill.

“We want to make sure the various agencies that are entrusted with putting [Dodd-Frank] into effect … continue to have the right level of resources to accomplish those goals,” Mr. Wolin said.

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