By Arthur D. Postal
WASHINGTON – The Securities and Exchange Commission Chairwoman Mary Jo White said her agency will look at the different standards on sale of investment products this year, but did not hint if the SEC will change anything.
She made her comments at the year’s first meeting of the agency’s Investor Advisory Committee. The financial and insurance industries have been waiting several years for a final word on applying the brokers’ fiduciary standard of care to insurance agents and advisors when they sell financial products.
White’s comments came as the Department of Labor (DOL) also deals with the issue of whether to impose a fiduciary standard of care on agents and advisors selling investment products into retirement funds.
Insurance agents and advisors have been hoping that the DOL would hold off on its plans until the SEC decides what to do. That is because the SEC has recently been leaning toward keeping the current dual standard out of concern that doing otherwise would severely limit the ability of lower-income employees to seek investment advice. That has been the key point made by representatives of agents and advisors to keeping the current suitability standard.
Concern has also been raised that the new DOL proposal could eliminate paying commissions to agents for products sold into retirement accounts covered under ERISA, which the DOL has jurisdiction over.
Congress debated legislation in 2013 that would require the two groups to corroborate on establishing new standards, but that failed. An effort to put such a provision in must-pass legislation reauthorizing the Terrorism Risk Insurance Act fell through in last days of the lame-duck Congress last December.
The DOL appears to be on the verge of sending to the Office of Management and Budget a revised version of a proposal it first introduced in 2010 to enhance the standard of care used in selling investment products in 401(k)s and similar products, but withdrew the proposal in mid-2011 after the proposal ran into intense heat in Congress and within the agent/advisor industry.
The National Association of Insurance and Financial Advisors said it hopes the SEC's proposed rule would address real problems existing in the marketplace and not bring unintended consequences for the investors it would aim to protect.
"NAIFA has long said that rules and regulations governing broker-dealers and their registered representatives of broker-dealers go far beyond those requiring them to recommend suitable products," said NAIFA president Juli McNeely. "Registered reps and their firms must comply with dozens of rules covering nearly every aspect of their businesses, from how they communicate with clients and advertise their services and products to how they keep and maintain records."
White also said the SEC will take up whether to enhance the disclosure of risks in target date funds, which compete with insurance default investment options, and will complete its review of the “accredited investor” definition.
The SEC will use funds from its current budget to hire additional examiners, “which will help increase our exam coverage of investment advisers,” she said.
She added that the agency’s budget request for the new fiscal year also sees additional funds for this purpose as a priority. “More is needed” for the SEC to properly do its job, White said.
Target date funds automatically rebalance their mix of stocks, bonds and other investments to become more conservative as time passes. Investment in these skyrocketed after they were approved as default investments for retirement plans by the by the 2006 Pension Protection Act.
“Target date funds have become an attractive option for employees who do not want to actively manage their retirement savings themselves,” SEC commissioner Luis A. Aguilar said at the American Retirement Initiative’s 2015 Winter Summit last week.
He said there have been reports that approximately 72 percent of 401(k) plans offer target date funds. By the end of 2012, target date funds accounted for 15 percent of all 401(k) assets, Aguilar said, “and that figure is expected to grow in the coming years.”
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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