Washington INsider

Washington INsiderblog

Mark Schoeff Jr. looks at what's really happening on Capitol Hill - and the upshot for advisers.

Advocate says no SEC action may be preferable on fiduciary duty

Piwowar stance makes clear the commission is split

Feb 4, 2014 @ 1:34 pm

By Mark Schoeff Jr.

One of the newest Securities and Exchange Commission members last week made it clear that the SEC is split on whether to proceed with a rule that would raise investment advice standards for brokers.

Following a speech at the U.S. Chamber of Commerce, I asked SEC member Michael Piwowar where he stood on a regulation that would impose a universal fiduciary duty for anyone providing retail investment advice.

He was forthright in stating his doubts about the need for a rule that would force brokers to act in the best interests of their clients, a bar that investment advisers must now meet but a distinction that is lost on most investors.

“Even if it's the case that more confusion does lead to worse outcomes, it's not clear to me that that's enough to justify engaging in rule making,” Mr. Piwowar said. “At that point, we need to consider whether we can do more on the investor education front and the disclosure front.”

The SEC, which is conducting a cost-benefit analysis of a potential rule and has been mulling whether to act for more than three years, would probably split, 3-2.

Mr. Piwowar and SEC member Dan Gallagher probably would oppose a fiduciary rule proposal, and members Luis Aguilar and Kara Stein would probably support it. SEC Chairman Mary Jo White would be the swing vote.

“The question is whether the SEC has three votes to put out a proposal,” said David Tittsworth, executive director of the Investment Adviser Association. “At this point, it's pretty clear they're not ready to move forward.”

Stasis for now suits one fiduciary-duty advocate just fine.

Knut Rostad, president of the Institute for the Fiduciary Standard, worries that trying to bring the fiduciary naysayers on board risks watering down the best-interests standard.

“If the direction we see now is continued in the rule-making process, it's definitely in the investors' best interests that the SEC not proceed,” he said.

Does this mean that Mr. Rostad is throwing in the towel? Not necessarily.

But no rule is better than a bad one, he said.

“The institute exists to advance fiduciary principles,” Mr. Rostad said.

Mr. Piwowar's stance likely is music to the ears of the National Association of Insurance and Financial Advisors, which has cautioned that a fiduciary-duty rule could raise compliance and liability costs for brokers and force them to abandon middle-market customers for those who can afford to pay an asset fee for advice.

In a Jan. 23 interview, prior to Mr. Piwowar's statements, leaders of the organization said that they have had good conversations with Ms. White about a potential fiduciary-duty rule.

“They're willing to see us. They're willing to be educated,” said NAIFA President John Nichols, who also is president of the Disability Resource Group.

“We appreciate the opportunity to share our thoughts around it [and] listen to their thinking,” he said.

NAIFA isn't opposed to fiduciary duty but is concerned about the impact of a flawed rule, Mr. Nichols said.

He defended brokers' suitability standard as a tough one, described NAIFA's 42,000 members as conducting “relationship-based” rather than “transactions-based” practices and bristled when told that fiduciary advocates point to his organization as an obstacle to a fiduciary rule.

“We're not the bad person,” Mr. Nichols said.

“The third tenet in our mission is to promote ethical conduct in our industry,” he said. “That is so important.”

For the foreseeable future, that conduct will be governed by the suitability standard.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 09

Conference

Diversity & Inclusion Awards

Attend the industry’s first event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate... Learn more

Featured video

Events

Transamerica's Boan: Crafting better retirement income conversations

Retirement income is a challenge for investors. How can advisers have better conversations about retirement income? Transamerica's Joseph Boan offers insights and tips for advisers.

Latest news & opinion

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

SEC slaps Lockwood with $200,000 fine over unseen trading costs to clients

Clients were forced to pay fees in addition to the usual wrap charges, the regulator maintains.

Gotcha! 10 lessons from brokers gone bad

These cases show why regulators nabbed reps and firms, and how to avoid their fate.

Tax-credit investigation may trip up Wells Fargo

Justice Department is investigating bank's dealings in tax credits for low-income housing, sources say.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print