After nearly 80 years of regulating investment advice, will the SEC take the lead in rulemaking, to preserve investor choice?
This question has been posed (and answered) by republican members of the House Financial Services Committee in the Financial Choice Act, proposed in June 2017. The bill specifically repeals the DOL’s Fiduciary Rule, prohibiting anyone from issuing a rule on fiduciary standards until 60 days after the SEC has issued a regulation.
Clayton went on to explain that the SEC had been reviewing the standards of conduct for investment for over ten years, citing a study of investor perspectives commissioned in 2006 and released in 2008. He discussed potential actions from maintaining the existing regulatory structure to creating a single standard of conduct for both investment advisors and broker-dealers, and a variety of solutions in-between.
Additionally, President Trump recently announced two nominations – a democrat and a republican - for the vacant commissioner seats at the Securities and Exchange Commission2. In May, the republican nominee Hester Peirce wrote in a U.S. News and World Report article that, “The rule is rooted in the belief that investors cannot choose for themselves. The Securities and Exchange Commission should be allowed to take the lead in any rulemaking related to investors’ interactions with financial professionals. Its approach to regulation preserves investor choice: Ensure that investors get the information they need to decide for themselves which products and services work for them.” The democratic nominee Robert Jackson has been less outspoken on the DOL Fiduciary Rule, but recently commented during a confirmation hearing at the Senate Banking Committee that the SEC should have an “important role in the development of fiduciary standards.”
While we wait
With the DOL’s likely 18-month delay on the final implementation of the Fiduciary Rule, there is an opening to amend or repeal some controversial aspects of the rule. Some in the industry view the DOL’s extended delay as a sign that the agency wants to collaborate with other federal and state regulators, including the SEC. There is also an opportunity for the SEC to reach out to the DOL and state legislators and regulators when undertaking its own rulemaking process.
However, individual states, also have the authority to regulate the fiduciary space, alongside the DOL and the SEC. Nevada and Connecticut were the first to act, with Nevada passing fiduciary legislation that became effective within a month of being signed.
Many states operate biennium legislative sessions aligned with the Congressional legislative cycle. This typically means that there is a significant push to get legislation through before adjournment at the end of 2018. The 18-month delay will likely extend beyond next adjournment of state legislative sessions. If there is no federal action in the interim, more states could follow Nevada and Connecticut. Some may take a wait-and-see approach, evaluating how the disclosure requirements passed in those two states impact investment advice.
Capco continues to monitor fiduciary developments, including tracking key stakeholder actions at the federal and state levels.
1The Investment Advisors Act defines an investment advisor as “any person or firm that: (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications.”
Kevin Cochran is a Consultant within Capco’s Center of Regulatory Intelligence, based in Washington D.C. He focuses on regulatory intelligence and policy developments and is part of Capco’s fiduciary services practice.
The content and opinions posted on this blog and any corresponding comments are the personal opinions of the original authors, not those of Capco.