SEC solicits comment on conduct standards for advisers and brokers

Commission seeks public comment on investment-advice standards; move suggests more coordination with Labor Department on fiduciary rule

Jun 1, 2017 @ 5:44 pm

By Mark Schoeff Jr.

The Securities and Exchange Commission announced Thursday that it is again seeking public comment on investment-advice standards, restarting its consideration of a fiduciary duty regulation while a similar measure promulgated by the Labor Department is undergoing a reassessment.

In the request, SEC Chairman Jay Clayton said that the DOL rule, which requires financial advisers to act in the best interests of their clients in retirement accounts, covers much of the same investor-protection ground that the SEC patrols.

In a recent Wall Street Journal oped, Labor Secretary Alexander Acosta said that he wants the DOL and SEC to work together on investment-advice regulation.

"I welcome the Department of Labor's invitation to engage constructively as the commission moves forward with its examination of the standards of conduct applicable to investment advisers and broker-dealers and related matters," Mr. Clayton wrote in the comment request. "I believe clarity and consistency -- and in areas overseen by more than one regulatory body, coordination -- are key elements of effective oversight and regulation."

But an advocate for the DOL rule is wary of explicit linkage between the DOL rule and a potential SEC regulation.

"It is frankly troubling that Chairman Clayton frames his announcement as a response to DOL Secretary Acosta's call for further input," Barbara Roper, director of investor protection at the Consumer Federation of America, said in a statement. "Industry opponents of the DOL fiduciary rule have made no secret of their desire to replace the DOL fiduciary rule with a watered down, disclosure-based approach from the SEC. Moreover, Chairman Clayton's statement, like Secretary Acosta's statement before it, appears to ignore the extensive input the SEC already provided to DOL as it drafted the current rule."

She said that the DOL rule covers retirement-plan sponsors and non-securities investments, such as insurance products, over which the SEC has no jurisdiction.

"This announcement must, therefore, not be allowed to delay or undermine implementation of the DOL rule," Ms. Roper said. "Instead, we encourage the SEC to look to the DOL rule as a model for how to apply a fiduciary standard to broker-dealers' conflicted business model."

The DOL is reviewing its rule, which will begin to be implemented on June 9, under a mandate from President Donald J. Trump that could lead to its modification or repeal. The SEC was given authority by the Dodd-Frank financial reform law to promulgate a uniform fiduciary standard for retail investment advice but has failed to act since then due to political divisions on the commission.

The SEC issued a request for comment in 2013 for a cost-benefit analysis of fiduciary duty, following a 2011 staff report recommending that agency promulgate an investment-advice rule.

"Significant developments in the marketplace since the Commission last solicited information from the public in 2013 include financial innovations, changes to investment adviser and

broker-dealer business models, and regulatory developments — including the issuance and pending applicability of the Department of Labor's fiduciary rule," Mr. Clayton wrote. "In light of these developments, I believe an updated assessment of the current regulatory framework, the current state of the market for retail investment advice, and market trends is important to the commission's ability to evaluate the range of potential regulatory actions."

The comment request includes 17 areas of examination with multiple embedded questions that range from defining "investment advice" to exploring whether investors are confused by differing standards of conduct between investment advisers and brokers to recommending whether the SEC should proceed with a "disclosure-based approach" or a "standards-of-conduct-based approach."

Mr. Clayton's predecessor as SEC chairman, Mary Jo White, came out in support of a uniform fiduciary standard but could not generate support for a proposal from a majority of the five-person commission.

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