Lawmakers chafe at SEC’s slog through fiduciary rule process

David Grim, director of the Division of Investment Management at the SEC

At a House subcommittee hearing, legislators grilled David Grim, director of the SEC's Division of Investment Management, about the timing of a potential rule.

Lawmakers expressed frustration Friday with the Securities and Exchange Commission’s slow walk toward proposing a rule that would raise investment advice standards while the Labor Department marches along.
In an appearance before a House Financial Services subcommittee, legislators pressed SEC Division of Investment Management Director David Grim about the timing of a potential rule. Mr. Grim did not provide a timetable, but said his staff “has done extensive analysis” as part of the process of developing a proposal.
“When will [your analysis] go to the commission?” Rep. French Hill, R-Ark., asked Mr. Grim.
“As soon as it’s ready,” Mr. Grim answered.
“This is ridiculous,” said Mr. Hill, a former broker who worked for more than three decades in the industry.
INCENSED
Mr. Hill, like other critics of the DOL rule, is incensed that the Labor Department has, in their view, preempted the SEC on the investment advice issue by proposing a rule that would require a best-interests standard on 401(k) and individual retirement accounts. They want DOL to wait until the SEC acts.
Backers of the DOL rule say opponents want the DOL to wait on the SEC because its slow-go approach would effectively kill the DOL measure. But those who want the SEC to go first say it makes more sense because an SEC regulation would apply to all securities investment accounts, not just those for retirement. The DOL rule also would cover insurance and other investments.
“It’s absurd to have two sets of rules,” said Rep. Brad Sherman, D-Calif. “It ought to be the same rule. The stricter rule ought to apply to non-IRA accounts.”
Both Democrats and Republicans have aired concerns about the DOL rule, but only Republicans recently voted for a bill that would halt the DOL rule. The DOL measure has White House support.
Opponents of the DOL rule say it will significantly raise liability and regulatory costs for brokers and make giving and receiving investment advice more expensive. Supporters argue it will curb incentives that encourage financial advisers to put clients into high-fee products that erode retirement savings.
The Dodd-Frank financial reform law gave the SEC authority to promulgate a uniform fiduciary standard for retail investment advice. For the last five years, the SEC has been struggling to advance a rule. SEC Chairman Mary Jo White declared her support for a fiduciary rule in March. But she acknowledged she has not yet achieved majority support on the five-member commission for proposing a measure.
Members of the House panel tried to get Mr. Grim to evaluate the DOL rule. He declined each time, echoing Ms. White in saying the DOL and SEC operate under different statutes and are pursuing separate rules. He said the SEC did provide some policy expertise to the DOL as it crafted its proposal.
The DOL rule is expected to be finalized in the first quarter of next year so it is in place before the end of the Obama administration.