Securities and Exchange Commission member Michael Piwowar indicated Tuesday he is leaning against a rule that would require all financial advisers to adhere to the “best interests” fiduciary standard, and instead favors strengthening disclosure.
One of two Republican commissioners on the five-person SEC, Mr. Piwowar expressed doubts that the SEC should propose a rule that would impose fiduciary duty on anyone providing retail investment advice. He added that he has not yet made a final decision.
The Dodd-Frank financial reform law gave the SEC the authority to promulgate a fiduciary-duty rule, but it has not yet acted on the
complex and controversial issue. SEC Chairman Mary Jo White said one of her priorities this year is to bring the panel to a decision on whether to proceed.
It's becoming clear that Ms. White will face
a split commission on fiduciary duty. Republican member Daniel Gallagher Jr. has voiced misgivings about a rule, while Democrats Luis Aguilar and Kara Stein likely would support one.
Investment advisers currently are fiduciaries, while brokers are governed by a suitability standard that allows them to sell higher-priced products as long as they fit a client's investment needs. Advocates assert that a fiduciary-duty rule would protect investors from conflicted advice. Skeptics argue that a flawed rule would eliminate the broker business model and hurt small investors.
“I think we can confidently say retail investors are confused and do not understand the differences between the duties of broker-dealers and investment advisers,” Mr. Piwowar said in
prepared remarks for the National Association of Plan Advisors. “However — and this is a big however — it is not clear that changes in the regulations applicable to broker-dealers and investment advisers are necessary, including the adoption of a uniform fiduciary standard.”
A former economist for the Republican staff of the Senate Banking Committee, Mr. Piwowar said the SEC should conduct a thorough cost-benefit analysis of a potential fiduciary-duty rule before proceeding. The SEC released a request for information for such an analysis in March 2013 but has not completed the study.
“It is important to note that based on the data available to me now, the potential benefits seem elusive and the potential costs sky-high,” Mr. Piwowar said. “Therefore, we need to take a measured and deliberative approach to the standard-of-care issue.”
Mr. Piwowar said he shares concerns voiced by congressional critics of a fiduciary-duty standard that it could lead to “investors potentially having limited financial advisory options or being locked out from receiving investment advice altogether.”
Rather than pursuing a fiduciary-duty rule, the SEC “should consider the value of a concise disclosure document for broker-dealers and investment advisers” based on a “temporary testing program to determine what information investors find important and useful in selecting a financial adviser.”
Models for a disclosure document include the mutual fund summary prospectus, an account-opening disclosure proposed by the
Financial Industry Regulatory Authority Inc. in 2010 and truth-in-lending disclosures.
But reform is needed because investors are suffering from “disclosure overload,” Mr. Piwowar said. “An overhaul of disclosure requirements is long overdue.”
