Based on new Hensarling bill, GOP not keen on SEC fiduciary rule after all

While Republicans had insisted they opposed the DOL rule because they wanted the SEC to act first, a discussion draft to overhaul Dodd-Frank has requirements that would delay SEC action further.

Capitol Hill Republicans have said for years they wanted the Securities and Exchange Commission to proceed before the Labor Department in proposing a rule to raise investment advice standards.
They bemoaned and tried to kill the DOL’s rule, which applies only to retirement accounts. It was finalized in April — before the SEC even made a proposal.
But if the House GOP gets its way, the SEC may be delayed even further before getting its own version out the door — raising a question about how much Republicans really want to see the SEC issue its own rule.
House Financial Services Committee Chairman Jeb Hensarling, R-Texas, last week released a discussion draft of legislation that would replace the Dodd-Frank financial reform law. It would overhaul every section of the measure, including the one that authorizes the SEC to promulgate a fiduciary duty rule.
(More: Everything you need to know about the DOL fiduciary rule as it develops)
The Dodd-Frank law does not mandate that the SEC advance a regulation, but it does outline several safe harbors it must include. For instance, charging a commission would have to be allowed, as would sales of proprietary products and sales from a limited menu of products. In addition, a broker would not have a continuing duty of loyalty to a customer.
A description of Mr. Hensarling’s bill implies that even those protections for the broker business model don’t go far enough.
“Imposing a fiduciary duty on broker-dealers will raise costs and reduce access to investment advice for retail investors, costing Americans billions of dollars in lost retirement savings,” the description states.
The SEC should proceed “only after rigorous analysis on the need for the rule, its impact on investor access to financial advice, and the costs and benefits to investors.”
Mr. Hensarling dismissed a 2011 SEC staff study that reviewed these issues — and ultimately recommended the commission propose a uniform fiduciary duty rule — because of the dissent of two former commissioners, Kathleen Casey and Troy Paredes, who said it lacked a sufficient cost-benefit analysis.
So according to the draft bill, before promulgating a rule, the SEC would have to demonstrate to Mr. Hensarling’s committee whether retail investors would be harmed (including whether the rule would reduce investors’ access to advice) and whether broker commissions would be curtailed or certain products would be limited. It would also need to offer alternative remedies to address the problem of conflicted advice.
In other words, it would impose a stringent cost-benefit requirement, giving the SEC an even higher hurdle than it already faces to get a rule through a divided commission on a politically volatile subject.
Mr. Hensarling’s bill is likely to be voted on by his committee in September. The chances of it making its way through the legislative process this fall are almost nil.
But it is one of several initiatives the House GOP is undertaking that offers a preview of how it would govern in the new Congress in 2017, assuming the party holds onto its majority.
Democrats are already preparing for a battle.
A statement from Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, said Mr. Hensarling’s bill would “hinder the SEC’s efforts to promulgate a fiduciary rule that is consistent with the Department of Labor’s recently finalized rule, to the detriment of American seniors and investors and to the benefit of unscrupulous financial advisers.”
Given the topsy-turvy campaign so far, it’s hard to project how the election will affect Congress and the prospects for Mr. Hensarling’s bill next year. But if Republicans maintain control of the House and approve the measure, financial advisers can’t say they didn’t see another threat to a SEC fiduciary rule looming.