SEC cost-benefit analysis turns up dearth of data on fiduciary rule

An indication by the Securities and Exchange Commission that it has failed to collect much data to gauge the potential impact of a rule to raise investment advice standards has fiduciary-duty advocates scratching their heads.
The request for information that the SEC put out a year ago generated 225 comment letters but failed to produce much grist for the regulatory analysis mill, Diane Blizzard, associate director of the commission’s Division of Investment Management, said during a panel discussion at an Investment Adviser Association meeting last week.
The comment deadline was last July.
“The bottom line is that even though a few industry participants gave us proprietary surveys and some data, not a lot of data came in, which is interesting,” Ms. Blizzard said. “People just aren’t in the habit of really providing a lot of data to us in rule making.”
The Dodd-Frank financial reform law gave the SEC the authority to promulgate a regulation that would require anyone giving retail investment advice to act in the best interests of their clients. The SEC said that the cost-benefit analysis will help it decide whether to advance a proposal.
Investment advisers already operate under a best-interests or fiduciary-duty, standard. Brokers are governed by a suitability rule that requires them to sell investors products that fit their needs and risk profile but allows the brokers to suggest higher-priced products.
Fiduciary-duty advocates were surprised by Ms. Blizzard’s comments.
“While it wasn’t hard statistical data, we provided information which supports the notion that the potential benefits of such a rule outweigh the costs,” said David Tittsworth, IAA executive director.
The SEC has been inundated with background about fiduciary duty for years, even before the 2013 request for information, said Knut Rostad, president of the Institute for Fiduciary Standard.
“If there’s a perception that the SEC hasn’t received much data, then I’m bewildered by what the meaning of data is,” he said.
“I’m at a loss as to what could be missing at this point. There’s a whole basement filled with research and data and papers within the bowels of the SEC,” Mr. Rostad said.
The SEC declined to comment beyond Ms. Blizzard’s remarks at the IAA conference.
PULLING THE PLUG
The worry among fiduciary backers is that if the SEC doesn’t think that it has adequate information, it might pull the plug on a fiduciary-duty rule.
“If the view [Ms. Blizzard] expressed at our conference is widely held, then the likelihood of a rule making is diminished,” Mr. Tittsworth said.
SEC Chairman Mary Jo White said last month that pushing the commission to decide on whether to pursue a fiduciary-duty rule is one of her top priorities.
Comments from the five commissioners indicate that they are likely split on the issue.
“A perception that there’s insufficient data could lead to a conclusion not to proceed,” Mr. Rostad said.
The SEC shouldn’t just rely on input it culls through the comment process, said Duane Thompson, senior policy analyst at Fi360, a fiduciary-duty training company.
He noted that the Labor Department is working on its own fiduciary-duty proposal for investment advice to retirement plans and has promised a thorough cost-benefit analysis.
“There is so much talk about the need for greater cooperation between DOL and the SEC,” Mr. Thompson said.
“Why not share cost-benefit data? That’s one thing they should look at,” Mr. Thompson said.
The biggest challenge in the process is quantifying the best-interests principle.
“There’s plenty of evidence that investors benefit, but you can’t put a dollar number on it,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “The Catch-22 of all of the emphasis on cost-benefit analysis is that the data is in the hands of the [financial] industry, which may or may not turn it over, based on whether it’s in their interest.”

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