SEC commissioner Peirce wants to move ahead on advice reform quickly

Her position indicates Regulation Best Interest and the larger rule could become final sooner rather than later, but potential litigation looms

Feb 12, 2019 @ 2:13 pm

By Mark Schoeff Jr.

Securities and Exchange Commission member Hester Peirce said Tuesday she wants the agency to complete investment advice reform soon, an indication that a rule could be coming by summer.

Ms. Peirce did not offer a specific time line for a final SEC rule, the centerpiece of which is Regulation Best Interest that is designed to raise broker advice standards.

She also didn't indicate how she would vote on a final rule, but she said getting it over the finish line is imperative.

"Regulation Best Interest is a priority of the [SEC] chairman, and it's also a priority of mine," Ms. Peirce said at the Bipartisan Policy Center in Washington. "I do think that it's important that we move forward with the rulemaking."

She noted the recent partial government shutdown has set back all SEC regulatory activity. But she told reporters on the sidelines of the event that the agency is forging ahead with chairman Jay Clayton's agenda, including advice reform.

"I want to just move forward with getting a standard in place as quickly as we can," said Ms. Peirce, a Republican.

Her push signals a final rule could come as soon as the early summer, according to Gail Bernstein, general counsel at the Investment Adviser Association. The SEC regulatory agenda has a deadline of September, but the SEC does not have to stick to that time line.

"We're very pleased to hear that getting Reg BI done is a priority for Commissioner Peirce," said Ms. Bernstein on the sidelines of the event. "It seems to be an indication that the commission is moving quickly on this, and hopefully we'll see a strong final rule soon."

With Ms. Peirce's support, Mr. Clayton would just need one more vote on the current four-member SEC to approve a final rule. The other members are Republican Elad Roisman and Democrat Robert Jackson Jr. The Trump administration has not nominated a candidate for the open fifth position, a Democratic seat.

But there are obstacles facing Mr. Clayton, who has touted Regulation Best Interest as a significant upgrade in broker requirements over the current suitability rule.

For one thing, a leading critic of the proposal, Rep. Maxine Waters, D-Calif., chairwoman of the House Financial Services Committee, is in a position to put pressure on Mr. Clayton to move the SEC proposal closer to the fiduciary duty that would continue to govern investment advisers.

In addition, several former SEC chief economists wrote a comment letter last week slamming what they called a lack of regulatory impact analysis in the SEC proposal.

As he pushes to finish the rule, Mr. Clayton is going to face "political risks and legal risks," said Tyler Gellasch, executive director of Healthy Markets and former counsel to former SEC member Kara Stein, on the sidelines of the event. "This is likely to be challenged in court relatively quickly. It's a basic tension: I want to get this done, but I want to make sure it stands up."

Under Regulation Best Interest, brokers would have to put their clients' interests ahead of their own desires to maximize revenue from product sales. But investor advocates assert it lacks the teeth to force brokers to meaningfully change the business practices they follow under a suitability standard, which allows them to recommend investments that give brokers the highest payout.

Ms. Peirce said she is continuing to meet with people on both sides of the debate.

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