SEC’s Piwowar talks fiduciary, money fund reform

One of the newest members of the Securities and Exchange Commission on Monday expressed doubt that it should propose a rule raising investment advice standards for brokers, advocating instead for strengthened disclosure.
Michael Piwowar acknowledged that research has shown investors are confused by the differing advice standards that brokers and investment advisers must meet.
But he said he isn’t sure that if investors don’t understand the distinction — financial advisers must act in their best interests while brokers meet a less stringent suitability standard — that the remedy is a new regulation forcing brokers to meet a higher bar.
“Even if it’s the case that more confusion does lead to worse outcomes, it’s not clear to me that that’s enough to justify engaging in rule making,” Mr. Piwowar told reporters following a speech at the U.S. Chamber of Commerce in Washington. “At that point, we need to consider whether we can do more on the investor education front and more on the disclosure front.”
The SEC should conduct disclosure studies, taking advantage of a provision in the Dodd-Frank financial reform law that allows the commission to do investor testing, according to Mr. Piwowar.
“Do focus groups, do investor testing, do experiments and find out which disclosures are actually better,” he said. “That’s what we need to get done before we do any rule making.”
The SEC is conducting a cost-benefit analysis that will help it decide whether to proceed with a rule.
Investment adviser advocates argue that raising brokers to a fiduciary standard will better protect investors from conflicted advice designed to get them to buy certain investment products. Skeptics warn that a flawed fiduciary-duty rule could raise liability and regulatory costs for brokers and price out of the market middle-income investors who don’t have enough assets to pay fees for advice.
“From my perspective, the fiduciary duty issue is really, really, really hard,” said Mr. Piwowar, a former Republican chief economist on the Senate Banking Committee and a former SEC economist who joined the commission in August.
Also on Monday, the Financial Planning Coalition urged President Barack Obama to address investor protection in his State of the Union speech Tuesday and call on the SEC to promulgate a fiduciary-duty rule.
“As consumers are called upon to take increasingly more responsibility for their financial well-being, the president and administration have an obligation to ensure that the financial advice Americans receive is always in their best interests,” the FPC said in a statement.
The coalition comprises the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors.
In his remarks before the chamber, Mr. Piwowar also addressed money market reform.
He said that while necessary, 2010 rule changes that improved disclosure, liquidity, credit quality and operations of the funds in response to the 2008 collapse of the Reserve Primary Fund were insufficient.
“More should be done to mitigate the first-mover advantage enjoyed by those who run during times of heavy redemption,” Mr. Piwowar said. “There also remains a need to provide investors with more timely information about funds’ holdings, including the value of those holdings.”
The SEC is considering two proposals for additional money fund reform.
One would require a floating net asset value for prime institutional money market funds rather than the traditional $1 redemption value. The other would require funds to impose liquidity fees and limit redemptions during times of market stress.
In a speech in San Diego last Wednesday, SEC Chairman Mary Jo White said that issuing a final money market rule is “a critical priority for the commission in the relatively near term of 2014.”
Christopher Donahue, president and chief executive of Federated Investors Inc., a major money fund company, said that he was reassured by Mr. Piwowar’s comments because the latter stressed that the SEC will play a more central role in reform than the Financial Stability Oversight Council.
The FSOC backed a previous proposal that drew strong industry criticism.
“It shows a willingness to do the economic analysis and [find] the marketplace answer rather than just doing whatever the FSOC doth say,” said Mr. Donahue, who attended the chamber event.