SEC’s Gallagher slams White House fiduciary memo as ‘propaganda’

An Obama Administration official’s call for tough rules on brokers is “propaganda” that ignores stiff oversight of the industry by market regulators, a Securities and Exchange Commission member said Friday.
SEC Commissioner Daniel Gallagher blasted a recent memo by White House advisers that said abusive trading practices cost workers billions of dollars in retirement savings. The document favors a Labor Department plan to require brokers to act in the customer’s best interest, even when that limits commissions or fees.
The remarks by Mr. Gallagher, a Republican, underscore how politically divisive the expected Labor Department proposal on retirement accounts will be. Wall Street trade groups have said they plan to lobby furiously against it because it could cut off their ability to serve smaller accounts.
(More: DOL fiduciary rule stalls again as brokerage industry makes last-minute push against it)
“The White House memo is thinly-veiled propaganda designed to generate support for a widely unpopular rulemaking,” Mr. Gallagher said at the annual SEC Speaks conference in Washington.
COSTS INVESTORS BILLIONS
The White House memo, obtained last month by Bloomberg News, said abusive trading practices cost investors $8 billion to $17 billion a year. It was drafted by Jason Furman, the chairman of President Barack Obama’s Council of Economic Advisers, and circulated to senior aides.
Mr. Gallagher said mishandling customer accounts is already disallowed under current regulations. The memo “blatantly ignores this comprehensive regulatory oversight,” he said.
“Indeed, the memo manages to avoid even mentioning the SEC at all,” he added.
The Labor Department has pressed to update its rules, which were issued in 1975. At that time, many workers had employer- controlled pensions and the 401(k) didn’t exist. Now, tens of millions of people have their savings in 401(k) plans and individual retirement accounts, known as IRAs, which together hold more than $11 trillion.
Requiring brokers to act in the best interest of customers, known as fiduciary duty, would provide “meaningful protections” to investors, according to Mr. Furman’s memo. Under current rules, brokers are held to a lower standard, which requires them to believe their recommendation is suitable for a customer.
(More: SEC commissioner Piwowar leans against fiduciary-duty rule)
Mr. Gallagher said he hasn’t seen the Labor Department’s proposal, which is expected to be filed with the White House’s Office of Management and Budget next week. He said the SEC’s rules for brokers aren’t perfect but the subject is much more complicated than how the White House portrays it.
“It’s easy to shout about conflicts of interest and vilify any potential practices that involve them, even if it means taking entire swathes of investment products off the table,” he said.