Fate of fiduciary rule rides on regulators’ political savvy

Acting Securities and Exchange Commission Chairman Michael Piwowar outlines ways to help 'forgotten investor,' but fiduciary duty is conspicuously absent.

Politics and policy are inextricably linked in Washington. The former is always required to make any substantive advances in the latter. Regulation of financial advice is primary example — and two recent developments show why.

On Friday, Securities and Exchange Commission Acting Chairman Michael Piwowar made his first major address while serving in his temporary position. A former Republican aide on the Senate Banking Committee, Mr. Piwowar showed that he has a pretty good grasp of politics.

First, the theme of his speech was the “forgotten investor.” The term is a variation the “forgotten man and woman” to whom President Donald Trump refers frequently when framing his governing approach. Using the “forgotten investor” trope helped tie Mr. Piwowar’s vision for the SEC to the new Republican administration.

My guess is that’s what Mr. Piwowar intended.

Despite the ephemeral nature of his “acting” title, Mr. Piwowar has taken action to rescind SEC rules on conflict minerals and executive compensation.

New agenda

In his speech at the Practising Law Institute’s SEC Speaks conference on Feb. 24, Mt. Piwowar discussed a couple more items that he hopes will influence the agenda that Mr. Trump’s SEC chairman nominee, Jay Clayton, pursues.

One of his suggestions for helping those he says are left behind by the agency’s rules is to democratize capital formation by opening up the sales of unregistered securities to all investors, not just those who are defined as “accredited” by their income or net worth.

What Mr. Piwowar omitted from his “forgotten-investor” policy prescription said as much about the SEC agenda he wants to shape as what he included.

Barbara Roper, director of investor protection at the Consumer Federation of America, said that the best way for the SEC to address the “forgotten investor” is by raising investment-advice standards.

The SEC has had a chance to do so ever since the Dodd-Frank financial reform law gave it the authority to propose a fiduciary rule almost seven years ago. In the meantime, the Labor Department has promulgated its own fiduciary rule for retirement-account advice that is due to be implemented on April 10, although the Trump administration intends to delay it.

`Bait-and-switch’

Mr. Piwowar’s speech showed that the SEC likely won’t be proposing its own rule, according to Ms. Roper.

“The fact that Chairman Piwowar didn’t include fiduciary duty on his list provides further evidence against [the Securities Industry and Financial Markets Association’s] bait-and-switch tactics calling to repeal the DOL fiduciary rule and replace it with an SEC fiduciary rule,” Ms. Roper wrote in an email. “If the SEC didn’t adopt a fiduciary standard under leadership far more supportive of the concept than this, there’s no earthly reason to believe it is going to do so now.”

A spokesman for Mr. Piwowar declined to respond to Ms. Roper’s assertion.

For it’s part, SIFMA insists the SEC — not the DOL — is best suited to create a uniform standard over all assets.

“The SEC is the appropriate and primary regulator with the authority to create a standard protecting all investment accounts, not just the retirement accounts regulated by the DOL’s flawed rule,” SIFMA president and chief executive Kenneth E. Bentsen Jr. said in a statement. “We look forward to working with the new SEC chair, once confirmed, on creating a best interest standard for all investment advice that preserves individual investor choice and advice without raising costs.”

Of course, the SEC at full strength, after the Senate confirms Mr. Clayton as well as two other nominees to fill the remaining open seats on the five-member panel, may decide to pursue a fiduciary rule. But it must overcome the qualms of Mr. Piwowar, who has long been a skeptic of such a measure.

A day after Mr. Piwowar gave his speech, former Labor Secretary Thomas Perez was elected chairman of the Democratic National Committee. His victory demonstrates that Mr. Perez knows a thing or two about politics. It was that attribute that helped get the DOL fiduciary rule completed.

Raising investment advice standards is a highly political issue — and the most skilled politicians will prevail.