Republicans want to see cost-benefit analysis before SEC proceeds on fiduciary

Today's hearing on 2016 budget discussed the DOL rule as well, with a lawmaker asking Chairwoman Mary Jo White, 'Why are you allowing the Labor Department to take over your territory?'

Nov 18, 2015 @ 1:39 pm

By Mark Schoeff Jr.

House Republicans indicated Wednesday they want to see a detailed analysis of the impact of a regulation to raise investment advice standards before the Securities and Exchange Commission proposes one — a requirement that could slow down an already sclerotic rule-making process.

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, pressed SEC Chairwoman Mary Jo White on the issue at the start of a three-hour hearing on the agency's agenda.

“Will this analysis be shared with this committee and made public prior to the proposal of a uniform fiduciary standard?” Mr. Hensarling said. “I would encourage you to do that.”

Ms. White responded that an analysis would be included when a rule is proposed.

She reassured Mr. Hensarling that the agency would pay close attention to whether a rule that requires investment advice to be given in a client's best interests would substantially raise the cost of the guidance.

“Clearly, a concern in the rule-making is what impact does it have on the ability of retail investors to get reasonably priced, reliable advice,” Ms. White said. “Part of this rule-making process will be very much dedicated to what impact it will have on precisely that.”

As she did in an appearance last week at the annual meeting of the Securities Industry and Financial Markets Association, she avoided giving a specific timeline for a rule proposal.

In response to a question from Rep. Ann Wagner, R-Mo., Ms. White said she expected staff to develop an outline of the rule “in the very short term.”

But she quickly added that's only one step on a lengthy journey.

“This is a long, complex exercise, and it has to involve the full commission,” said Ms. White, who announced her support for a rule earlier this year.

The Dodd-Frank financial reform law gave the SEC the authority to promulgate a fiduciary-duty rule that includes carve-outs for the brokerage business model, such as permitting commissions and sales of proprietary products. It has not yet acted.

In the meantime, the Labor Department has introduced a rule that would require a best-interests standard for advice to retirement accounts, such as 401(k) and individual retirement accounts. The measure, which has strong support from the White House, likely will be finalized early next year.

Lawmakers expressed their frustration that the DOL has jumped ahead of the SEC. Opponents of the DOL rule say it will significantly increase liability risk and regulatory costs for brokers and make giving and receiving advice much more expensive.

“Why are you allowing the Labor Department to take over your territory that we put in Dodd-Frank that was approved by the House, approved by the Senate and signed by the president?” asked Rep. David Scott, D-Ga.

Ms. White responded, “I don't view it that way. We are separate agencies. They have responsibility and authority in the [retirement] space.”

Mr. Scott didn't back off.

“I want to ask you to get more aggressive here,” he said. “Seize your authority back on this fiduciary issue.”

Bipartisan lawmakers have launched an effort to write a bill that would replace the DOL rule with a different approach to a best-interests standard. Opponents of the DOL rule also hope to attach a rider to an upcoming appropriations bill that would deny DOL the funds to implement the measure.

Supporters of the DOL rule argue it would protect workers and retirees from being sold high-fee investments that erode their savings, and that it would apply to both insurance and securities products.


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