DOL and SEC: Don’t be intimidated

It’s a good thing investors aren’t holding their breath waiting for the Labor Department and the Securities and Exchange Commission to produce uniform fiduciary standards governing brokers and investment advisers.
If they were, they would be turning a very dark shade of blue, since both agencies have been dragging their feet in developing the standards, perhaps reflecting the intense opposition to such rules from the brokerage industry. The DOL has been working on a rule for four years. The SEC has had authority to develop a standard for almost as long.
Now it seems that investors might have to wait a while longer. As reporter Mark Schoeff Jr. reported recently, the DOL might not meet its self-imposed August deadline. The SEC staff, meanwhile, which supposedly had been preparing a cost-benefit analysis of a uniform fiduciary standard, has now been directed to prepare a new document that would outline the commission’s options for such a rule.
Investors generally aren’t complaining about the delay, probably because many wrongly believe that investment advisers and brokers already are held to the same standard, i.e., that both make recommendations that are solely in the interests of their clients.

However, the agencies should pick up the pace and produce the standards. It is ridiculous that the DOL has labored for four years and has not yet produced a final rule.

Assistant Labor Secretary Phyllis Borzi declared early this month: “We’re working slowly and deliberately because it’s much more important for us to get it right than meet someone’s arbitrary deadline. August is our goal.” However, she added: “Maybe we will be ready then. Maybe we won’t.”

Getting it right is important, but it shouldn’t take four years to do so. A four-year process suggests that the DOL is trying to find a way to write the regulation so as not to anger the brokerage industry and its supporters in Congress. But it should not let the brokerage industry and those congressional allies intimidate it and delay its work.

The SEC might have a partial excuse for not producing its version, because the Dodd-Frank financial reform law that gave it the authority to produce such a standard also asked it to do a great many other things.
But the SEC has enough resources to work on multiple fronts. Instead of taking action, the agency has been studying the proposal to death. Last Friday, SEC Chairman Mary Jo White announced that she had asked her staff for yet another document, this one detailing the commission’s fiduciary options.

WOULD IT REALLY HURT?

One of the claims of those opposing the extension of the fiduciary standard to brokers is that such an extension would hurt small investors. But neither the DOL nor the SEC has received hard evidence that such harm would occur. If it exists, let the opponents produce it.

It’s time for officials at both agencies to stop this dilly-dallying and simply make decisions. No doubt, the decisions will anger one side or the other, but that side will ultimately adjust.

We hope the decisions will be in favor of applying the fiduciary standard — that anyone giving investment advice to any client must act in the best interests of the client. Investors should be confident that the investment advice they are being offered by any financial professional is not being tainted by the professional’s self interest. They deserve nothing less.