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Examiner Funding Denied, Fiduciary Rule Delayed



For advocates of raising the standards of conduct for financial advisors, spring has been a cruel season indeed, but for opponents of the blanket fiduciary standards the delays this year feel very much like last year.

Last week, a House panel stripped the Securities and Exchange Commission (SEC) of $300 million in funds the agency had requested to hire more examiners to police financial advisors.

The House Appropriations Subcommittee on Financial Services and General Government approved the SEC budget at $1.4 billion. The SEC had requested $1.7 billion for fiscal year 2015 beginning Oct. 1. The $1.4 billion is $50 million more than the current year.

In congressional testimony earlier this year, SEC Chair Mary Jo White said the $1.7 billion request would have allowed the SEC to hire 639 more people in “critical, core areas.”

Included in the 639 new hires would have been 316 examiners for the Office of Compliance Inspections and Examinations, about 240 of which would be dedicated to examining financial advisors.

More examiners are sorely needed, White said. She added that in fiscal year 2013, the SEC examined only 9 percent of the 11,000 registered investment advisors (RIAs).

“The number of SEC-registered advisors has increased by more than 40 percent over the last decade, while the assets under management by these advisors have increased more than two-fold, to almost $55 trillion,” White said.

The SEC has eight examiners per $1 trillion in investment advisor assets under management, down from 19 in 2004, she added.

The full appropriations committee in the Republican-controlled House is aiming to complete the 2015 fiscal year spending document by early July, according to media reports, and that’s when the partisan budget battles really get started.

In the Democrat-controlled Senate, lawmakers consider the Obama administration’s budget requests separately from the House. The Senate could decide to vote to fund the SEC request in its entirety, and that would lead to bargaining between both chambers.

The yearly back-and-forth budget showdowns are part of doing business in the nation’s capital. And so are the legislative delays.

In late May, advocates of stiffer rules under governing the fiduciary duty of financial advisors learned they would have to wait until next January at the earliest year before the U.S. Department of Labor (DOL) proposes its fiduciary rule.

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The rule, according to a blog post by Jon Vogler, senior analyst of retirement research with Invesco Consulting, “designates anyone who renders investment advice to a plan for a fee as a fiduciary and expands the definition of what constitutes ‘investment advice,’ thereby including more people under the fiduciary designation.”

Advocates of broker/dealers and investment advisors meeting the fiduciary standard say the rules will help protect employees from financial advisors who face conflicts of interest.

Advisors face conflicts when they earn commissions on the products they sell. By law, the investment products need be merely “suitable” for investors, even if they are not necessarily in the best interest of those investors.

Some financial advisor groups have said that if the DOL imposed on advisors a fiduciary standard instead of a suitability standard, the cost of doing business would rise as brokers and advisors would have to meet standards required of RIAs.

The higher standard would make life more expensive and force advisors to drop clients, leaving many middle market investors without advice.

Industry trade groups such as the National Association of Insurance and Financial Advisors (NAIFA) say the suitability threshold for advisors allows them to offer advice at an affordable price, which is better than no investment advice at all.

Other groups representing financial advisors say the fiduciary standard is the only way to ensure that clients are properly served.

The DOL fiduciary rule originally was proposed in 2010. After delays, it was pushed back yet again last summer. Now it has been delayed once more.

Separate from the DOL, the SEC also is considering imposing a uniform fiduciary-duty standard on retail financial advisors. The SEC proposal stemmed from a 2011 study that recommended a common fiduciary standard on retail advisors.

No action has been taken on the issue by the SEC so far this year.

A bill sponsored by Rep. Ann Wagner, R-Mo., would avoid “dueling” standards from the DOL and the SEC “by preventing the DOL from issuing changes to the fiduciary definition until 60 days after the SEC issues a final rule related to the standards of conduct of broker-dealers,” Vogler writes.

That means the SEC would first have to pass its standards of conduct before the DOL could come up with its definition.

The bill, H.R. 2374, also known as the Retail Investor Protection Act, was passed by the House last October, but still needs approval of the Senate and the president’s signature to become law.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at

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