One of the nominees to become an SEC commissioner expressed concern Tuesday that the agency has not had appropriate input into a Labor Department rule on investment advice.
In a confirmation hearing before the Senate Banking Committee, Hester Peirce said she hasn't had a chance to read the DOL measure, but is uneasy about the way it was put together.
“I'm quite worried about the Department of Labor's proposal in part because I've heard that the SEC's input wasn't considered,” Ms. Peirce said in response to a question from Sen. Tim Scott, R-S.C.
In previous congressional testimony, SEC Chairwoman Mary Jo White and other officials from the Securities and Exchange Commission and Labor Department have said the two agencies have conferred on the rule.
DOL spokesman Mike Trupo confirmed as much in a statement Feb. 24, when the agency came under similar scrutiny.
“We coordinated closely with staff from the Securities and Exchange Commission during the entire four-year period of developing the proposed rule,” he said.
Ms. Peirce also was sympathetic to Mr. Scott's assertion that the rule — which would require financial advisers to act in the best interests of their clients in retirement accounts — could raise the cost of advice and hurt investors with modest accounts.
“I worry that what will end up happening is that we'll cut a whole segment of people out of getting access" to advice, Ms. Peirce said.
Ms. Peirce has been nominated to replace departed Republican SEC Commissioner Daniel Gallagher, who opposed the DOL rule and raised doubts about the SEC's own effort to promulgate a uniform fiduciary standard for retail investment advice.
At the same hearing, Lisa Fairfax, who has been nominated to replace former Democratic SEC Commissioner Luis Aguilar, praised the aim of the rule — to protect investors from conflicted advice — but also said it must not undermine the advice market.
“Protecting investors in this space is of critical importance,” Ms. Fairfax said. “Protecting access to quality and appropriate advice in this area is also important, particularly for middle- and lower-income investors.”
Neither Ms. Peirce nor Ms. Fairfax indicated whether they support or oppose the DOL rule. When asked by Sen. Jack Reed, D-R.I., to list their top investor-protection priorities, neither nominee mentioned the fiduciary duty rule that Ms. White is trying to push through the agency.
Although it was a hearing about SEC nominees, the Financial Industry Regulatory Authority Inc. came up in questioning. Sen. Tom Cotton, R-Ark., asked Ms. Peirce about a paper she wrote about Finra reform.
Ms. Peirce said it is unclear to whom Finra is accountable — the industry, investors or the SEC, which must approve Finra rules. She said Finra's flaws can slow market innovation and leave investors vulnerable.
“The implications are that we're not getting the kind of regulator of broker-dealers that we need,” Ms. Peirce said.
But she stopped short of offering a policy prescription for Finra.
“I haven't formed an opinion on what the right answer is,” Ms. Peirce said.
Ms. Peirce's work as senior research fellow at the conservative Mercatus Center at George Mason University in Arlington, Va., drew criticism from Sen. Elizabeth Warren, D-Mass., who argued that her extensive criticisms of the Dodd-Frank financial reform law and other regulations disqualify her as a regulator who must enforce rules.
“What kind of watchdog will you make if you believe that parts of Dodd-Frank are, and I'm quoting you, 'pointless,' and you think Congress should repeal much of it?” Ms. Warren asked.
She wrote papers as an academic and a researcher, Ms. Peirce responded. She added that she understands the role of a regulator because she's a former SEC staffer.
“The responsibility of the agency is to enforce the rule,” Ms. Peirce said.
Ms. Warren wasn't satisfied.
“I think your record gives the American people reason to be concerned about your nomination,” Ms. Warren said.
But Ms. Peirce and Ms. Fairfax, a law professor at George Washington University, appear to be headed for approval by the committee.
“We'll get the committee together as soon as we can to try to move your nominations to the [Senate] floor,” Chairman Richard Shelby, R-Ala., said.