Republican lawmakers and financial industry opponents of the Labor Department's fiduciary rule repeatedly say — almost like a mantra — that the Securities and Exchange Commission is the place where such a regulation should originate.
The DOL rule, whose implementation has been delayed until June 9, would require financial advisers to act in the best interests of their clients in retirement accounts. But the SEC has jurisdiction over securities regulation, and if it sets advice standards, they would apply to all retail investment accounts, DOL-rule foes argue.
Their preferred starting place for a fiduciary rule would be codified in the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act, a nearly 600-page bill that would overhaul the Dodd-Frank financial reform law. The measure, written by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, likely will be approved by the panel next week and by the full House later this spring.
Mr. Hensarling's bill would repeal the DOL rule and not allow the agency to promulgate such a regulation until 60 days after the SEC issues its own fiduciary rule.
The language in the legislation is drawn from a bill that was authored by Rep. Ann Wagner, R-Mo. But Mr. Hensarling, Ms. Wagner and other House Republicans don't simply want to hand the responsibility for a fiduciary rule to the SEC. They also want to tell the agency how to do it.
Take a look at pages 455-459 of Mr. Hensarling's bill. There you will find the hoops through which the SEC must jump before it can propose a fiduciary rule. Actually, they're more like brick walls than hoops — and the SEC might easily smash into one of them.
Under the bill, the SEC must submit a report to Mr. Hensarling's committee and the Senate Banking Committee that shows that retail investors are being harmed by differing standards between investment advisers, who are fiduciaries, and brokers, who meet a less stringent suitability standard.
The SEC must outline whether there are "alternative remedies" to reduce confusion among consumers. The agency must address whether "simplifying titles used by brokers, dealers and investment advisers" or "enhancing disclosures surrounding the different standards of conduct" would be better ways to proceed.
That creates an opening for the SEC to take the path suggested by Acting Commission Chairman Michael Piwowar — title reform — or one that has strong backing in the industry — strengthening disclosure.
If the SEC decides to go with a fiduciary rule, it also must determine whether it will "adversely impact the commissions of brokers, the availability of proprietary products offered by brokers and the ability of brokers to engage in principal transactions," according to Mr. Hensarling's bill.
In addition, the SEC must publish "formal findings" about whether adopting a uniform fiduciary standard will limit "retail investor access to personalized and cost-effective investment advice," something the industry says that the DOL rule does.
The SEC would have to be deeply committed to a fiduciary rule to take on and survive the gantlet laid down in the CHOICE Act. That's probably just how the House Republicans want it.
There's little possibility that the bill will get through the Senate, where Democrats have plenty of members to sustain a filibuster. But that chamber may break the CHOICE Act into smaller parts. Perhaps the strictures on an SEC fiduciary rule will emerge in some other form in that chamber.
It's likely that the road ahead on fiduciary duty will become much harder for the SEC if congressional Republicans have their way.