SEC Investment Advice Rule Tough Enough, Clayton Assures Pols

By John Hilton

At one point during Thursday's House Financial Services Committee hearing, SEC Chairman Jay Clayton assured a skeptical lawmaker that the agency's investor advice rule would protect investors like a fiduciary standard.

After pointing out that registered investment advisors must put clients first, Clayton told Rep. Maxine Waters, D-Calif: “that’s what we’re going to do in the broker-dealer space. You as the broker-dealer can’t put your interests ahead of the customer.”

Clayton appeared for a second time before the committee and spent plenty of time defending the SEC Regulation Best Interest. The rule is in the public comment phase and hold brokers to a best interest standard, with additional disclosures, and restrictions on who can use the titles "advisor" and "adviser."

Critics, which included many Democrats on the House panel, say it does not go far enough. Many in the RIA community were disappointed with the proposal since it does not raise brokers to their tougher fiduciary standard.

In a striking coincidence, the Department of Labor fiduciary rule was officially killed while Clayton testified. The Fifth Circuit, which tossed out the rule on March 15, handed down its mandate officially killing the DOL rule late Thursday morning.

'Somewhat Disappointed'

Rep. Carolyn Maloney, D-N.Y., noted the areas the SEC rule falls short of the tougher standards.

"I have to say that I was somewhat disappointed that the SEC did not propose a uniform best interest standard for both investment advisors and brokers for providing recommendations to retail investors," she said. "I’m concerned that the SEC’s proposed rule is not as strong as it should have been, and is not as strong as the Department of Labor’s fiduciary duty rule."

In response, Clayton stressed the duty of care added to the SEC rule, and the steps taken to mitigate and eliminate conflicts.

"There are no conflict-free relationships," he added. "Exposing them, mitigating them and making sure everybody understands what the motivations are, that's what I want to do in this space."

The SEC rule is too confusing, said Rep. David Scott, D-Ga., a frequent charge lodged at what are actually three separate rules, which add up to more than 1,000 pages.

"This complexity makes it difficult for the investment industry to discern what we need, which is a clear path to compliance," Scott said.

The SEC is accepting public comment on its rule until Aug. 7. Six town hall meetings are also planned, Clayton said. Responding to Rep. Ann Wagner, R-Mo., a persistent DOL rule critic, he hedged on whether additional time for comments will be needed.

“I’ll see in August," Clayton said. "This issue has been around for 10 years. People have been heard."

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].