Comments Frame SEC Fiduciary Debate

Comments are pouring into the Securities and Exchange Commission (SEC) on the industry’s favorite topic: the fiduciary standard.

The SEC reports 41 comments were received as of Tuesday. New chairman Jay Clayton penned a June 1 public statement staking a claim to any fiduciary standard.

The Dodd-Frank Act of 2010 directed the SEC to produce a fiduciary standard, but the agency has been plagued by political divisions in the years since. Phase one of the Department of Labor (DOL) fiduciary standard for all retirement funds took effect June 9.

Phase two requiring substantial disclosures and establishing a private right of action under the Best Interest Contract Exemption takes effect Jan. 1, 2018. The BIC exemption will be needed to sell variable and fixed indexed annuities under the DOL rules.

The question is whether the SEC is too late to stake its claim to a fiduciary rule, as many in the industry favor.

“Many of these matters fall within the SEC's mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation,” Clayton wrote.

The SEC issued 17 discussion questions with Clayton’s letter and invited comment. Comments received so far represent a mix for and against a fiduciary standard, and which department/agency should be authoring such rules.

Here is Clayton's statement, along with comment instructions.

“The SEC, possibly in combination with FINRA and state securities agencies, is the obvious regulatory body to establish and oversee fiduciary responsibilities of advisors, planners and reps,” wrote Robert Ramos, managing partner and financial advisor at Wealth Management Partners in Waldorf, Md. “Fiduciary regs that cover all types of accounts -- not just IRAs.”

Others professed a strong desire for a fiduciary standard, in any form.

“There is absolutely no reason why any investment advisor or broker/dealer should be held to any standard other than a fiduciary standard,” said Joshua Lannik, a New York teacher. “Advisors should be working in the interest of their customers.”

Increased Costs of Compliance

Small investors will be the ones hurt by increased costs associated with more regulation, said Scott Wallschlaeger, president of Midwest Professional Planners in Proctor, Minn. Several letter writers offered variations on this theme.

“Over the last few years, due to other regulations (Dodd Frank), we have increased our costs of compliance by over 100 percent from previous levels and I'm afraid that will happen again with” the DOL rule," Wallschlaeger wrote.

These increased costs of compliance include staff time to track rules and comply, attorney costs for redrafting documents and agreements, and hiring compliance consultants, he explained.

Midwest Professional Planners is a small registered investment advisor firm with $200 million in assets under management.

“These costs are becoming a significant burden on our business and are forcing us to limit new hires (which we need desperately),” Wallschlaeger wrote. “This is also leading to our costs going up, therefore our cost to clients going up.

“I worry that this rule will continue to increase costs going forward and will leave us no choice but to further increase our minimum investment size.”

The SEC made no indication of its time frame, or even if it will act on a fiduciary standard.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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