SEC Official Urges Labor Department to Reconsider ‘Misguided’ Fiduciary Rule
August 1, 2017 by Thomas Harman
WASHINGTON – The U.S. Securities and Exchange Commission is urging the U.S. Department of Labor to reconsider its fiduciary rule that broadly expanded new regulations to advisers and brokers who had not been covered.
Commissioner Michael Piwowar, in a recent comment letter to the DOL, said the rule dismisses desired results for conflict of interest disclosure, failed to distinguish “selling” activities from “advice” activities and would have an impact that would extend beyond retirement accounts and disrupt broker-client relations. In a statement Piwowar said the DOL should “reconsider this misguided rulemaking.”
The SEC’s comments are in advance of an Aug. 7 Labor Department comment deadline on the workability of the new rule that could result in changes before the rule is fully implemented.
The fiduciary rule was partially implemented in June with retirement advisers and brokers having to fulfill elements of the rule that included giving advice in the best interest of clients, charging reasonable compensation and making no misleading statements about investment transactions or conflicts of interest. Advisers must also comply with phase one of the Best Interest Contract Exemption — allowing fiduciaries to be sued for breach of contract related to the standards for best interest advice to clients — in order to receive commissions.
Piwowar’s comment letter critiqued what he described as the fiduciary rule’s dismissal of disclosure-based remedies to conflicts of interest in the financial services industry, which the DOL said had been ineffective by itself in mitigating conflicts in advice.
Also, Piwowar said the rule does not sufficiently distinguish between the securities-selling activities that have been traditionally performed by broker-dealers and the advice activities in which regulated investment advisers participate.
Broker-dealers are generally not considered to be fiduciaries in the manner investment advisers are, he wrote. Investment advisers are fiduciaries who must serve in clients’ best interests, including being obligated to not subordinate clients’ interests to their own. Broker-dealers are required to deal fairly with customers under SEC rules and must meet suitability obligations that require them to make recommendations that are consistent with the consumer investment profiles. They are also required to disclose conflicts of interest when making recommendations to customers.
The rule is also under attack in courts and in Congress. Groups including the American Council of Life Insurers and the Insured Retirement Institute are challenging the Fiduciary Rule in federal court (Best’s News Service, July 6, 2017). In Congress, U.S. Rep. Ann Wagner, R-Mo., has proposed legislation to repeal the rule and have the SEC develop a new best-interest standard for retirement advice (Best’s News Service, July 14, 2017).
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)
BN-NJ-7-28-2017 1606 ET #
