Piwowar defends SEC's best-interest rule

SEC commissioner rips DOL fiduciary as a "terrible, horrible, no good, very bad rule"

May 24, 2018 @ 10:59 am

By John Waggoner

Outgoing Securities and Exchange commissioner Michael Piwowar had some tart words for his fellow regulators — and occasionally for the fund industry — at the Investment Company Institute's annual conference in Washington Thursday.

Paul Schott Stevens, the ICI's president, questioned Mr. Piwowar about the SEC's proposed Regulation Best Interest. "The SEC recently issued one of its highly terse and laconic 1,000-page releases—" Mr. Stevens began.

"It's almost as long as your comment letters," Mr. Piwowar shot back, leaving Mr. Stevens momentarily speechless.

Mr. Piwowar's opinion of the Department of Labor's fiduciary rule: "I think it was a terrible, horrible, no good, very bad rule.

"It was marketed as a way to increase investor protections around discussions of retirement accounts," Mr. Piwowar continued. "What it really was was a politicized tool from the beginning to enable trial lawyers. It set up an unworkable, impossible set of standards for people to comply with. The Department of Labor couldn't have cared what we thought and what you all thought, didn't listen to Finra, didn't listen to state regulators or the insurance regulators, and went forward with a rule that proved to be unworkable."

Mr. Piwowar said that he thought that the comment process on Regulation Best Interest would be crucial to the final form of the rule. "It is such a highly complex area," he said. "We think we got most of the important things right in there. I think we could have done a better job explaining things, but it was important to get things out."

Another important piece of the regulation is the relationship summary. "The intention is to give someone sitting across the table a simple document that explains their standard of care, their compensation and potential conflicts of interest as well as any other relevant information," he said.

Mr. Piwowar said he thought the proposed disclosure was long, and that it, too, would benefit from the comment process.

Streamlining the process of approving ETFs — now largely done through exemptive relief — is another priority for Mr. Piwowar.

"We have the opportunity to move forward on this," he said. "Let's at least get something out there for plain vanilla ones that will let regulators give consistent treatment across all funds and free up staff resources to work on the other ones that have been sitting there for months and sometimes years."

Mr. Piwowar repeatedly bristled at what he views as other regulators' encroachment on the SEC's turf, with the fiduciary rule being a case in point. Another was the proposal to have funds disclose risk management discussions in their annual reports, in part because other regulators saw mutual funds as shadow banks that needed to be regulated as such.

"It was an opportunity for us to assert jurisdiction in the space and remind people that we have been heavily regulating mutual funds for 75 years," Mr. Piwowar said.

His most direct attack was on a current theory, promoted by the OECD, that cross-ownership of stocks by mutual funds and ETFs suppresses competition.

"Do you want my two-word response or one-word response?" he asked Mr. Stevens. "The two-word response is 'junk science.'"

Mr. Piwowar will leave the SEC on July 7, about a month after his five-year term as commissioner ends.


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