Securities and Exchange Commission Chairman Jay Clayton and SEC member Robert Jackson Jr. disagreed Tuesday on whether the agency's recent investment advice reform regulatory package strengthened investor protections.
In an appearance before the House Financial Services Committee, Mr. Clayton told lawmakers the new rules — the centerpiece of which is
Regulation Best Interest for brokers — are a breakthrough.
"In both the investment adviser space and the broker-dealer space, [investment] professionals can't put their interests ahead of their clients,'" Mr. Clayton said. "For the first time, we've made that clear."
At the same hearing, Mr. Jackson depicted Reg BI, as it's known, differently.
"The law in the United States should be clear: When there is a conflict between an ordinary American investor and a financial adviser, the investor comes first," Mr. Jackson said. "The rules that we adopted ... had instead a muddled standard that had to do with a balance between the various interests."
Mr. Clayton and Mr. Jackson
testified along with the other three SEC members — Hester Peirce, Elad Roisman and Allison Herren Lee — in the first joint congressional hearing for the entire five-member SEC since 2007.
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The clashing viewpoints of Mr. Jackson, a Democratic appointment to the commission, and Mr. Clayton, who was nominated by President Donald J. Trump, reflected the political differences on the committee.
Democratic lawmakers expressed opposition to the advice reform package. Rep. Carolyn Maloney, D-N.Y., criticized the interpretation of the investment adviser standard of care.
"It would weaken the long-standing fiduciary standard for investment advisers and increase risk for retail investors," Ms. Maloney said.
She wants the SEC to try again, saying new advice requirements should come closer to those embodied in the now-defunct Labor Department fiduciary rule for retirement savings accounts.
"The SEC should revisit this and come back with standards that President Obama supported and worked so hard for," Ms. Maloney said.
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Indirectly, Mr. Clayton pushed back. Later in the hearing, Rep. Bill Huizenga, R-Mich., restated Ms. Maloney's critique that the SEC has watered down the investment-adviser standard.
"Is that true?" Mr. Huizenga asked Mr. Clayton.
"No. That's not true," Mr. Clayton responded.
Over the course of the 3½-hour session, there were relatively few questions about Reg BI, and no lawmaker brought up the two recent lawsuits against the measure.
In remarks to reporters after the hearing, Mr. Clayton declined to comment on the lawsuits.
