SEC reasserts itself on investment-advice standards, but it's not clear whether it will overtake DOL fiduciary rule

New SEC Chairman Jay Clayton makes request for comment on fiduciary duty one of his first actions, as DOL reasseses its measure

Jun 2, 2017 @ 1:53 pm

By Mark Schoeff Jr.

In one of his first actions as Securities and Exchange Commission chairman, Jay Clayton turned the agency's attention to investment-advice standards, a move longed for by financial industry opponents of the Labor Department's fiduciary duty rule. But it's not clear whether the SEC will wrest the issue away from the DOL.

On Thursday, Mr. Clayton released a request for comment about fiduciary duty, an area where the DOL has taken the lead. The DOL regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts, will begin implementation on June 9.

But the DOL measure is undergoing a review at the direction of President Donald J. Trump that could result in its modification or repeal. Opponents assert that it is too complex and costly and encroaches on the SEC's regulatory turf.

"I am thrilled," said Norm Champ, a partner at Kirkland & Ellis and former director of the SEC's Division of Investment Management. "I applaud Chairman Clayton's effort to reassert SEC leadership on this critical issue for investors."

With the six-page comment request, Mr. Clayton is getting the SEC back into the fiduciary game after seven years in which it has failed to act on authority given to it by the Dodd-Frank financial reform law to propose its own investment-advice regulation.

Mr. Champ, who was deeply involved in previous SEC internal discussions on fiduciary issues, said the SEC is in a better position than DOL to develop advice policy.

"As the primary regulatory of investment advisers and broker-dealers, the SEC is far more qualified than the Department of Labor to create a workable solution in this area," Mr. Champ said.

Mr. Clayton said he was responding to Labor Secretary Alexander Acosta's invitation for the two agencies to cooperate. That's what the Investment Company Institute, a leading critic of the DOL rule, wants to see.

"The agencies ought to work together toward a single, harmonized best-interests standard," said ICI president and chief executive Paul Schott Stevens. "At the end of the day, that's the only thing that's going to serve the interests of investors and the interests of the market. I strongly commend Chairman Clayton for this initiative."

Kenneth E. Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, echoed Mr. Stevens in a statement on Friday: "SIFMA has long-supported the creation of a best interest standard for brokers who provide personalized investment advice, and we continue to believe that the SEC is the appropriate regulator to do so."

Advocates for the DOL rule, who say it is needed to protect investors from inappropriate high-priced products that erode savings, warned that the SEC's work should not undermine the DOL's efforts.

"A rule considered by the SEC cannot be considered as a replacement of the DOL's fiduciary rule," the Financial Planning Coalition said in a statement. "The DOL rule and any proposed SEC rule would fall under different statutes and serve different purposes."

The architect of the DOL rule, former assistant secretary Phyllis Borzi, said the agency has already worked extensively with the SEC.

Barbara Roper, director of investor protection at the Consumer Federation of America, pointed out that the SEC has no jurisdiction over non-securities investments, such as insurance products, that the DOL rule addresses. But she doesn't see the SEC's request for comment, which does not yet have a deadline, as foreshadowing an SEC takeover of investment-advice policy.

"It's more likely that this is a signal that the DOL and the SEC will be working in concert," Ms. Roper said. "It's being framed as a cooperative effort."

The SEC would have a hard time trumping the DOL rule because it will soon become applicable. Only Congress can stop the DOL, said Duane Thompson, senior policy analyst at Fi360, a fiduciary training and accreditation firm.

The House is set to vote next week on legislation written by House Financial Services Committee Chairman Jeb Hensarling, R-Texas, that contains a provision to kill the DOL rule.

"The genie's out of the bottle," Mr. Thompson said. "Unless Congress passes the Hensarling bill, which puts the SEC in the driver's seat, there's not much the SEC can do. It's highly unlikely to get enough [Senate] Democratic support to repeal the DOL rule."

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