The Securities and Exchange Commission has gone farther in the last 18 months to reform investment advice standards than it ever has, but it's difficult to predict when it will cross the finish line.
SEC chairman Jay Clayton made reform a top agency priority shortly after he was sworn into office in the spring of 2017. The agency released
a three-part proposal totaling nearly 1,000 pages in April, and the comment period ended Aug. 7.
SEC member Robert Jackson Jr. wants his colleagues to take their time and get the rule right.
He said it needs to be revised to clarify that brokers must put their clients' interests ahead of their own, prohibit specific conflicted compensation arrangements and ensure disclosures are effective in helping investors understand the differences between advisers and brokers.
"After hearing
comments from investor advocates and the industry, I'm more convinced than ever that any proposal that doesn't address those three issues is one that I won't be able to support," Mr. Jackson said in an interview. "I have an open mind on the best way to get from our proposal to a rule that actually protects investors, but we have a lot of work to do."
How long it will take the agency to settle on a final rule depends on how much it reworks the initial recommendation.
"I don't think it will be changed all that much," said Aron Szapiro, director of policy research at Morningstar.
Mr. Clayton must obtain three votes for approval of a final rule. The five-member commission released the proposal for comment by a vote of 4-1, but every member except Mr. Clayton expressed some misgivings about the package.
NEW MEMBERS
While the SEC is working on the advice proposal, commission membership is changing. Republican
Elad Roisman was confirmed by the Senate earlier this month to fill the seat vacated in July by Michael Piwowar. He has not stated a position on the proposal.
Democratic commissioner Kara Stein, whose term expired last year, must leave the SEC by December. The Trump administration has not yet nominated a replacement.
Although Republican SEC member
Hester Peirce has pointed out areas of the proposal she wants to see modified, she said in a July speech she is "committed to working with the chairman to get this rule finalized."
If Mr. Roisman supports the proposal, Mr. Clayton would have three votes.
"You've got three Republican [commissioners] armed with a top agenda item from the chair on a pro-investor rule-making," said Ira Hammerman, executive vice president and general counsel at the Securities Industry and Financial Markets Association. "In that kind of fact pattern, action in 2019 is likely."
Mr. Jackson warned against promulgating investment-advice reform on a split vote.
"I think it would be unfortunate for American investors and the agency to have a rule this important rammed through on a partisan vote," he said. "This can and should be bipartisan. I've always found chairman Clayton to have an open mind. I'm hopeful that he's willing to move this in the right direction."
Mr. Clayton is likely to take a measured approach, said Fred Reish, partner at Drinker Biddle & Reath.
"Chairman Clayton will try to build consensus," he said. "It will slow things down."
