SEC chief Jay Clayton tells lawmakers agency is drafting its own fiduciary duty rule

He assures Republican critics of DOL rule that agency's proposal would give investors the option of choosing a broker for investment advice

Oct 4, 2017 @ 2:00 pm

By Mark Schoeff Jr.

Securities and Exchange Commission Chairman Jay Clayton told lawmakers on Wednesday that the agency is drafting a proposal for a fiduciary rule.

The agency is trying to catch up with the Department of Labor, which partially implemented its own fiduciary rule in June and is currently conducting a review of the regulation's enforcement mechanisms as ordered by President Donald J. Trump that could lead to revisions. The SEC is currently receiving public comments about a fiduciary rule.

"The next step in anything like this would be a rule proposal. We're working on such a proposal," Mr. Clayton said in an appearance before the House Financial Services Committee. "We're going to work with the Department of Labor. If this were easy, it would already have been fixed."

As he did in testimony before the Senate Banking Committee last week, Mr. Clayton outlined the rubric that he would use for a fiduciary rule. It must preserve investors' choice to use a broker or investment adviser, be clear, and apply consistently to all types of investment accounts. It must also be the product of cooperation between the SEC and DOL, whose rule requires brokers to act in the best interests of their clients in retirement accounts only.

Mr. Clayton said he is "confident" the agency can propose a rule that "addresses those core issues and that has a standard that protects investors that they understand."

He declined to provide a timeline for when the measure might be released.

The SEC is currently operating with only three of its normal complement of five commissioners. Mr. Trump has nominated Republican Hester Peirce and Democrat Robert Jackson to fill the two openings. The Senate Banking Committee has not yet scheduled a confirmation hearing. It's unlikely the SEC would advance a fiduciary rule before Ms. Peirce and Mr. Jackson come on board.

Mr. Clayton reassured Republican lawmakers that the SEC would address concerns they have raised about the DOL fiduciary rule. Republicans and financial industry opponents assert that the measure, finalized during the Obama administration, is too complex, increases litigation risk and will force brokers to abandon investors with modest retirement accounts because of the increased costs of providing fiduciary advice.

Supporters of the DOL rule maintain that it would mitigate broker conflicts of interest that lead to the sale of inappropriate high-fee investment products that erode savings.

One of the most strident GOP critics, Rep. Ann Wagner, R-Mo., touted the bill she introduced last week that would kill the DOL rule and replace it with a disclosure-based best-interests standard for brokers. The legislation directs the SEC to write the rule, putting the agency in the driver's seat on the regulation of investment advice, instead of the DOL.

Mr. Clayton aligned himself with Ms. Wagner.

"A lot of the themes that you outlined are themes that I have, which is [investor] choice," he said.

Near the end of the hearing, which lasted more than three-and-a-half hours, Rep. John Delaney, D-Md., asked Mr. Clayton whether he supported the DOL rule.

"I like the words," Mr. Clayton said, referring to the DOL rule's goal of reducing brokers' conflicts of interest. "The question is, are we going to implement it in a way that adversely affects choice?"

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Using data to improve client conversations

What can you do to create better conversations with clients? Marc Butler of BNY Mellon Pershing's Albridge says data can help you have the next best chat.

Latest news & opinion

Meet our new 40 Under 40s

For a fifth year, InvestmentNews is proud to shine a spotlight on the amazing accomplishments and potential of top young financial professionals.

10 biggest retirement mistakes

Adhere to enrollment deadlines and distribution rules or pay a hefty penalty.

DOL fiduciary rule on brink of death as key deadline passes

Justice Department didn't petition the Supreme Court to rehear the case. A mandate from the 5th Circuit would finally lay the fiduciary rule to rest.

Finra to overhaul broker information system, cut compliance costs for broker-dealers

The move is intended to cut compliance costs for firms as well as make the registration and disclosure process more efficient.

SEC rule proposal doesn't include 401(k) sponsors in 'best interest' advice

Plan sponsors are left out of the equation because they don't appear to fall within the definition of "retail" investor, legal experts 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