By Arthur D. Postal
WASHINGTON – The Securities and Exchange Commission should implement a uniform fiduciary duty for broker/dealers and investment advisors “where the standard is to act in the best interest of the investor," SEC chairman Mary Jo White said today.
White’s comments at a Securities Industry and Financial Markets Association (SIFMA) investment conference in Phoenix will reawaken a sleeping tiger who has lain dormant for several years, and will face opposition from Congress and, indeed, within the SEC itself.
One complexity she noted in her comments is that the SEC currently does not have enough resources to ensure compliance and that some third-party compliance program – not to replace, but to supplement and complement the Office of Compliance Inspections and Examinations (OCIE) – may be required.
White said she has studied the issue “intensely” for several months, and that implementation of a uniform fiduciary duty under Section 913 of the Dodd-Frank Act --- rooted in the Investment Advisers Act -- has become a “huge” personal priority and is “the right thing to do.”
Her comments were provided by Neil Simon, vice president for government relations at the Investment Adviser Association (IAA), and through a video of her appearance at the SIFMA conference provided by the SEC. Her comments were made in a question-answer session with Ken Bensten, president and CEO of SIFMA.
Simon said the IAA supported White’s initiative.
“The IAA has long advocated that all financial professionals who provide investment advice about securities to clients, including advice about retirement accounts, should act as fiduciaries – that is, they are subject to a legal obligation to act in the best interests of their clients and place their clients’ interests before their own,” Simon said.
He added that the IAA has urged the SEC to preserve the existing overarching fiduciary principles in the Investment Advisers Act of 1940 in any rulemaking on a uniform fiduciary duty.
“We would oppose any effort that would ‘water down; the existing fiduciary standard and appreciate Chair White’s recognition of the strength of the principles-based Advisers Act fiduciary duty,” Simon said.
Simon also was very cautious about the potential for third-party involvement in advisor oversight, which is now handled by the OCIE.
He said the IAA is actively considering various concepts to enhance the SEC’s oversight of the advisory profession, including possible roles for third parties.
“We are concerned, however, that a third-party compliance program, depending on its parameters, would have a number of potential disadvantages compared with SEC examinations,” Simon said.
“Some of the many issues to consider include the standards, scope and frequency of any third-party reviews; the qualification process and oversight for third parties; and the cost to advisors,” he said.
White implied that the Obama administration’s decision to allow the Department of Labor (DOL) to proceed with a proposal that would impose a tighter standard on the sale of investment products into retirement accounts had forced the agency’s hand. However, she added, “It is no secret the SEC has been looking at this issue for a while, literally for decades.”
White said the SEC is a separate agency from the DOL, with separate mandates, but that “it would be awkward for the DOL to impose a tighter standard and not have the SEC deal with the issue, since we operate in the same space.”
At the same time, she acknowledged that this presents what she called “many complexities.”
Those complexities include strong opposition from the two Republican members of the five-member commission.
Commissioner Daniel M. Gallagher has been particularly outspoken in his opposition.
For example, at a conference last month, Gallagher said, “It’s easy to shout about conflicts of interest and vilify any potential practices that involve them, even if it means taking entire swathes of investment products off the table.”
But, he said, “It’s a lot harder to establish a regulatory system that balances mitigating conflicts and effective disclosures with expanding investment opportunities for the good of individual investors and the economy as a whole, as the Commission has done for decades.
“In a matter of this import, we should not shirk from our path simply because it is difficult,” Gallagher said.
InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].
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