Analyst: SEC Poised to Take Regulatory Torch From Labor Department

A Securities and Exchange Commission (SEC) best-interest fiduciary standard for all brokerage accounts is good news for investors, in the view of one Wall Street analyst.

The SEC will likely issue its own fiduciary rule proposal in the next few months after the two newest SEC commissioners were sworn in last week, according to news reports. The good news comes if and when the SEC eclipses the Department of Labor as the lead agency on a best-interest standard, wrote Morgan Stanley analyst Nigel Dally, in a client update.

“As the SEC covers a broader range of products than the Department of Labor, who only governs retirement accounts, we heard concern from some investors that these new standards could emerge as a concern,” Dally wrote.

“Our view is somewhat different,” he added. “We view this as a sign that the DOL is passing the regulatory baton to the SEC with respect to individual retirement accounts.”

“The industry has long sought standardized rules among various regulatory bodies – SEC, DOL and FINRA – and this, in our view, suggest this may indeed be happening,” he wrote. “While it is too early to say for sure, we viewed the news positively.”

Commissioners Hester M. Peirce and Robert J. Jackson Jr., both nominees of President Donald J. Trump, joined SEC commissioners Kara Stein and Michael Piwowar, along with SEC Chairman Jay Clayton.

Many industry groups have long sought a consistent best interest standard across regulatory agencies, and if the SEC takes precedence over the DOL comes as good news for investors, then it can only come as excellent news for advisors.

A “fully constituted” SEC will give regulators the opportunity to put into place “a clear, consistent best interest standard for financial professionals,” the Insured Retirement Institute said last month in a news release, following Senate confirmation of Peirce and Jackson.

The fiduciary rule raises standards for investment advice into retirement accounts.

Tax Reform

In separate commentary on tax reform, new product pricing among life and annuity companies should reflect the lowered tax rate, and earnings on life insurers’ legacy blocks of business “should receive a boost,” Dally wrote.

Torchmark, a Texas-based holding company with subsidiaries specializing in life and supplemental health insurance for the middle-income market, is expected to reap “a sizeable benefit” from tax reform as the company has exposure to longer-duration products, he wrote.

Brighthouse Financial, which began trading as a separate public company last year after it was spun off from MetLife, is also expected to benefit from lower taxes, he said.

By contrast, Principal Financial and MetLife, which will benefit from tax reform to a limited extent, are are “likely to see that benefit dissipate relatively quickly in our view,” Dally wrote.

Insurers report earnings later this month and early next month.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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