House Republicans have targeted a potential investment advice regulation in their effort to pull the reins in on the Dodd-Frank financial reform law.
The GOP's opposition likely will surface at a House Financial Services subcommittee hearing Tuesday covering two aspects of Dodd-Frank that directly effects advisers – fiduciary duty and adviser oversight.
The panel will explore Securities and Exchange Commission reports recommending that the commission impose a universal fiduciary duty on anyone providing retail investment advice and harmonize regulations governing investment advisers and broker-dealers. The two Republican SEC commissioners dissented from the reports, however, arguing that the SEC staff had done an insufficient cost-benefit analysis to justify its conclusion. House Republicans have echoed that skepticism over the past several months.
Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Capital Markets subcommittee, went a step further yesterday.
During a Capitol Hill press conference, at which he appeared with GOP colleagues to criticize what they called the negative impact of Dodd-Frank regulations, Mr. Garrett suggested that the SEC step back and consider whether a fiduciary duty rule is even necessary.
“The SEC must produce data to show what problems would be solved in this area,” said Mr. Garrett, who will chair the Sept. 13 hearing.
He was unsympathetic toward SEC pleas for more funding to carry out its investor protection and market-monitoring mandates, which will be increased substantially by Dodd-Frank, stating: “Perhaps the solution is to first do an assessment of whether they should pursue the areas they're currently pursuing.”
What's more, the SEC will not have a chance to speak for itself at the hearing. The
Financial Industry Regulatory Authority Inc. will appear.
Finra will respond to draft legislation proposed by full committee chairman Spencer Bachus, R-Ala., that would allow for multiple self-regulatory organizations to oversee investment advisers.
A committee aide said that the SEC was not invited to testify because the agency has not yet proposed a fiduciary duty rule.
“Therefore, a SEC witness would be unable to make comments about what the commission might do because those statements would run afoul of the Administrative Procedure Act,” committee spokesman Jeff Emerson wrote in an e-mail.
Dan Barry, chief lobbyist for the Financial Planning Association, said that the SEC's absence was odd.
“It doesn't seem to make sense to accept the reports without explanation or inquiry,” Mr. Barry said.
The witnesses that will testify are expected to express familiar sentiments about fiduciary duty. This is the first time, though, that Congress will devote an entire hearing to the issue since Dodd-Frank was enacted in July 2010.
“We don't think the SEC should weaken or water down the [1940] Adviser Act fiduciary standard,” said David Tittsworth, executive director of the Investment Adviser Association, who is scheduled to testify. “We think that a rules-based approach would negate one of the greatest strengths of the fiduciary standard, which is its breadth.”
Even though the Securities Industry and Financial Markets Association supports a universal fiduciary duty, Mr. Tittsworth said that the fiduciary framework it proposed in July, calling for applying fiduciary duty on an account-by-account basis, is rules-oriented.
“Rules-based, principles-based, I think that's a red herring,” SIFMA general counsel Ira Hammerman said at a Washington event today sponsored by the Institute for the Fiduciary Standard. “When a comparable level of services is being provided to individual investors, then the same standard of care — a universal fiduciary standard of care — should be applied.”
The adviser association and SIFMA can continue this debate on Sept. 13, when representatives of both will testify.
