Clayton says SEC can't simply take over DOL fiduciary rule

'We have a process. They have a process. We have to respect those,' chairman tells SIFMA annual conference

Oct 24, 2017 @ 2:00 pm

By Mark Schoeff Jr.

Industry opponents of the Labor Department's fiduciary rule want the Securities and Exchange Commission to swoop in and take over rulemaking on investment advice standards, but the agency can't simply stop the DOL regulation, SEC Chairman Jay Clayton said Tuesday.

"They have their process. We have our process. We have to respect those," Mr. Clayton said at the Securities Industry and Financial Markets Association annual conference in Washington. "We have the authority and the expertise to be leaders in this space. The DOL has a responsibility. States have a responsibility. We need to cooperate."

Part of the DOL rule, which requires brokers to act in the best interests of their clients in retirement accounts, became applicable in June. The agency is now reassessing the enforcement mechanisms of the measure in a review order by President Donald J. Trump that could lead to major revisions.

When Mr. Trump put the DOL rule in limbo, critics of the rule hoped the SEC would jump into the void and wrest control of the issue from DOL. Under Mr. Clayton, the SEC has issued a request for comment on fiduciary duty. The agency also has begun to draft a rule, he recently told lawmakers.

But the SEC can't simply supersede the DOL. The two agencies operate under different statutes, the federal retirement law for the DOL and federal securities law for the SEC. That means that each can take its own approach to fiduciary duty.

"We try to be mindful of each other, and, hopefully, it ends up in a place that is satisfactory," Mr. Clayton told reporters on the sidelines of the SIFMA conference.

Critics of the DOL rule say it is too complex and costly and will price investors with modest assets out of the advice market. Supporters of the rule say it mitigates broker conflicts of interest that result in the sales of inappropriate high-fee products that erode savings.

Mr. Clayton reiterated that his goal is to produce a fiduciary rule that preserves investors' choice in the type of financial adviser with whom they work — either an investment adviser or a broker. He said there won't likely be a regulation that favors a particular type of model.

"The idea that there's a silver bullet — one account type, one relationship type — that solves all of this is not something to pursue," he said. "You can't deliver everything that everyone would want in that way."

He made it sound as if the SEC has a long road ahead to reach its fiduciary destination.

"We have a lot of comments to work our way through, a lot of perspectives," he told reporters.

The SEC was given authority by the Dodd-Frank financial reform law to promulgate an investment advice regulation, but has failed to do so because of sharp differences on the issue among the agency's normal complement of five members. Currently, the SEC has two vacancies.

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