SEC Investment Advice Rule Could Drop This Week: Analyst

By John Hilton

The Securities and Exchange Commission will pull back the curtain Wednesday on its nearly year-long work on an investment advice rule for brokers.

According to a notice posted to the SEC website last week, the agency will discuss the rule during a 3:30 p.m. public meeting at the SEC's Washington, D.C. offices.

The SEC has been collecting comments since June 2017. Clifford Kirsch, former SEC official under President George W. Bush, said the agency could publish a rule this week. That would be followed by a public notice and comment period.

"It really seems like a rule proposal will follow very shortly," said Kirsch, a partner in the Washington, D.C. law firm Eversheds Sutherland. "I think what we'll see (during the meeting) is some discussion, a vote, and then the release of a rule proposal either the same day or a few days after that."

The meeting agenda includes:

Whether to propose new and amended rules and forms to require registered investment advisors and registered broker/dealers to provide a brief relationship summary to retail investors.
Whether to propose a rule to establish a standard of conduct for broker/dealers and natural persons who are associated persons of a broker/dealer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.
Whether to propose a Commission interpretation of the standard of conduct for investment advisors.

It will be noteworthy to see what language the SEC issues on key definitions of an advisor's duty, Kirsch explained.

"It seems the SEC is going to issue and interpretive release as to an advisor's duty of prudence, which has been not as well developed as an advisor's duty of loyalty and duty to mitigate conflicts," he added. That is going to be something very, very interesting to watch out for."

In addition, details on disclosure will be important, Kirsch said. As in what disclosures will the SEC require, how are they delivered, what are the operational details, and so on.

A final rule should be on the books by the end of 2018, Kirsch predicted.

No Lack of Authority

Much attention shifted to the SEC after an appeals court threw out the Department of Labor fiduciary rule in a surprise decision March 15. The government has not decided whether to appeal that decision.

But the SEC has broader powers to regulate in the investment advice arena, Kirsch said.

The SEC has a mandate to establish investment advice rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

"The DOL court cases in the 5th circuit really hinge on the fact of whether the DOL had the authority to engage in this type of rulemaking," Kirsch said. "As you read the open notice (for the Wednesday meeting), there’s nothing where you’d say, 'Wow! I wonder where the SEC would have authority for that?'"

While SEC staff worked on a proposal under former chair Mary Jo White, political friction prevented a vote to adopt rules. The five-member commission was short two members for all of 2016 and 2017.

In January, 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.

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].

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]. Follow him on Twitter @INNJohnH.