Securities and Exchange Commission Chairman Jay Clayton expressed confidence Wednesday that his agency and the Labor Department could reach "common ground" on an investment advice standard across all accounts.
In an appearance at the U.S. Chamber of Commerce in Washington, Mr. Clayton acknowledged that the
partially implemented DOL fiduciary rule "is on the books," but said he is concerned about differing rules for the same clients depending whether they're working with their adviser on retirement or other investments.
"That doesn't seem right," Mr. Clayton said. "We have our mandate; they have theirs. But I'm very hopeful that we can reach common ground. There's enough overlap in our mandates where we can get to a place of clarity. I think that we all want the same thing: We want what's best for the Main Street investor to save for their retirement."
The DOL regulation requires that financial advisers act in the best interests of their clients in retirement accounts. Investment advisers already meet such a fiduciary standard, while brokers are governed by a suitability standard that allows them to put clients in expensive products as long as they meet a client's investment objectives.
The DOL rule is
undergoing a reassessment directed by President Donald J. Trump that could result in modifications. The SEC was given authority by the Dodd-Frank financial reform law to propose a uniform fiduciary rule for retail investment accounts, but has not acted.
Mr. Clayton, who has been in office since early May, has indicated he wants the SEC to tackle the issue, and has released a
request for comment on fiduciary duty.
Proponents of the rule say it is necessary to curb conflicts of interest for brokers that result in the sales of high-fee investments that erode savings. Opponents, such as the Chamber's Center for Capital Markets Competitiveness, assert that the rule is too costly and will force brokers to abandon clients in modest accounts, a position that Mr. Clayton echoed.
"It would be extremely disappointing to me if whatever direction we go here resulted in a substantial reduction of choice for the individual investor," Mr. Clayton said.
Republican SEC Commission Michael Piwowar criticized the DOL rule in a
July 25 comment letter, saying it is "dismissive of the efficacy of conflict-of-interest disclosure" and would be "disruptive" of the broker-client relationship.
"Rather than dismiss out of hand the role of disclosure in policing conflicts of interest, I would strongly encourage the department to redouble its efforts to work with the commission and its expert staff, who may bring to bear our decades of experience in enforcing multiple disclosure-based regimes," Mr. Piwowar wrote.
Mr. Clayton, who came to the SEC from the law firm Sullivan & Cromwell, disputed what he called a limited portrayal of him as a Wall Street lawyer. He told a story about reviewing a 401(k) plan for his parents' business and finding "multiple layers of fees that were not disclosed."
"That kind of person is not who we want in our capital markets," Mr. Clayton said of the retirement fund adviser.
As he did in his
first major speech as SEC chairman a couple weeks ago, Mr. Clayton evoked "Mr. and Ms. 401(k)."
"If you want to persuade us at the commission that the way you're looking at the world is the right way to look at the world, do it through the lens of Mr. and Ms. 401(k), because that's how we're looking at it — their long-term interests," he said.
