SEC's Jay Clayton makes fiduciary duty a priority, acknowledges issue is 'complex'

In first major speech as agency chairman, he says a guiding principle is 'long-term interests of Mr. and Ms. 401(k)'

Jul 12, 2017 @ 2:57 pm

By Mark Schoeff Jr.

In his first major address since taking office in May, SEC chairman Jay Clayton said a fiduciary rule is one of his priorities and that he would like to work with the Labor Department on an advice standard.

"With the Department of Labor's fiduciary rule now partially in effect, it is important that the commission make all reasonable efforts to bring clarity and consistency in this area," Mr. Clayton said in a speech at the Economic Club of New York. "It is my hope that we can act in concert with our colleagues at the Department of Labor in a way that best serves the long-term interests of Mr. and Ms. 401(k)."

The DOL has implemented two provisions of its own regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts. But that measure is undergoing a reassessment mandated by President Donald J. Trump that could lead to revisions.

The Dodd-Frank financial reform law gave the SEC the authority to promulgate a uniform fiduciary rule for retail investment advice. Such a regulation could impose a best-interests standard on brokers, a higher bar than the current suitability rule that governors product sales and the same standard that investment advisers must meet.

The Securities and Exchange Commission has not proposed a fiduciary rule because of deep divisions among commissioners on the topic. Mr. Clayton, who released a request for comment in early June, seemed to acknowledge the SEC struggles.

"There is a lot of work to do, and this issue is complex," Mr. Clayton said. "And, any action will need to be carefully constructed, so it provides appropriate and meaningful protections but does not result in Main Street investors being deprived of affordable investment advice or products."

Mr. Clayton's concerns echo those of financial industry opponents of the DOL rule, who assert that it is too complex and costly and could force brokers to abandon clients with modest accounts. Supporters of the measure say that it would mitigate broker conflicts of interest that result in the sale of inappropriate high-fee products that erode savings.

In recent appearances on Capitol Hill, Mr. Clayton and DOL Secretary Alexander Acosta pledged to work together on a fiduciary rule. Mr. Acosta also has said that the DOL rule must not curb access to advice or products.

A fiduciary rule would directly impact average investors, who Mr. Clayton said represent the test of whether the SEC is achieving its mission of protecting investors, maintaining strong markets and facilitating capital formation.

"Or, as I say when I walk the halls of the agency, how does what we propose to do affect the long-term interests of Mr. and Ms. 401(k)?," Mr. Clayton said. "What can the commission do to cultivate markets where Mr. and Ms. 401(k) are able to invest in a better future?

He cited the SEC's history of putting "disclosure" at the heart of its regulatory approach as one that he would continue to follow so that "investors have access to a well-crafted package of information that facilitates informed decision-making."

Mr. Clayton promised to beef up enforcement against frauds targeting ordinary investors.

"In this regard, we are taking further steps to find and eliminate from our system pump-and-dump scammers, those who prey on retirees and, increasingly, those who use new technologies to lie, cheat and steal," he said.

He also reiterated that the SEC staff is working to "simplify and enhance" databases that allow investors to perform background checks on advisers and brokers.

"In this regard, I have a short but important message for Main Street investors: the best way to protect yourself is to check out who you are dealing with, and the SEC wants to make that easier," Mr. Clayton said.

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