SEC Jumps Back in the Fiduciary Rule Debate
June 6, 2017 by Joe Morris
The Securities and Exchange Commission has issued a call for public comment on investment advice standards, reinserting itself in the fiduciary rule debate after years of silence.
In a notice released Thursday, Chair Jay Clayton said the time had come for a fresh look, given advances in technology since the SEC last considered such rules in 2013 and the impending June 9 effective date of the Labor Department’s fiduciary rule.
“I believe an updated assessment of the current regulatory framework, the current state of the market for retail investment advice and market trends is important to the commission’s ability to evaluate the range of potential regulatory actions,” Clayton said.
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Labor Secretary Alexander Acosta had publicly invited the SEC last month to collaborate on advice rules as the DOL carried out its White House–mandated review of the fiduciary rule, which applies only to retirement assets. Clayton referenced that request, saying the commission should take part.
“I believe clarity and consistency — and, in areas overseen by more than one regulatory body, coordination — are key elements of effective oversight and regulation,” he said.
But the notice appears to lay the groundwork for an independent SEC initiative, potentially the uniform fiduciary standard long advocated by the fund industry. Clayton lists 17 broad categories for commenters to address, including how to define “retail investor” and “investment advice,” as well as how any commission action should comport with the DOL’s rule.
Other questions address the rise of robo-advisors, whether fee-based advisory models are gaining ground on commission-based practices and the experience of retail investors and market participants in preparing for the DOL’s rule. The request also leaves the door open to input on any other related topics.
The notice from Clayton asks respondents for data that might help in the SEC’s analysis, but reminds anyone who considers using the webform or emailing comments that all responses will be made public, and warns them to to strip out identifying or sensitive information they choose before submitting.
The notice gives deadline for submissions and notes that this process is not an official comment period.
The SEC first began probing the idea of a standard of conduct for RIAs and broker-dealers as far back as 2006, when it commissioned a study on investor perspectives by the Rand Corporation.
Dodd-Frank authorized the SEC to establish a uniform standard, and the commission followed up with a public comment process in 2013, but it took no further action. A year ago, the SEC’s Division of Investment Management said it expected to issue notice of proposed rulemaking on a new standard by April 2017, but no notice ever appeared.
The return of the SEC to the fray now, just a week before the DOL’s fiduciary rule kicks in, injects more confusion into an already fraught regulatory transition for the industry, said Ropes & Gray benefits lawyer Josh Lichtenstein.
“Chairman Clayton’s statements appear to indicate that the SEC is ready to actively participate in the ongoing discussion over what fiduciary standards are appropriate for retail investors,” Lichtenstein said in a statement. “This creates more uncertainty for institutions that are working to comply with the DOL’s fiduciary rule and who must now face the possibility of needing to make further changes to their compliance and marketing practices in response to any new rulemaking.”
While firms will probably not feel compelled to make immediate changes to their compliance plans for next week, some may feel prompted to delay any steps they had envisioned for complying with the portions of the DOL rule taking effect next year, he wrote.
