SEC Chairman Looks for Common Ground on Fiduciary Rule

August 23, 2017 by Kevin S. Kim, Esq.

After Republicans in Congress had passed legislation to overturn the DOL fiduciary rule, Securities and Exchange Commission Chairman Jay Clayton stated his desire to reach “common ground” with the Labor Department on releasing a new uniform standard advisory rule.

The Financial Services Institute (FSI) has been lobbying Labor to delay full implementation of the rule until early 2019, in the hopes that a full repeal or replacement bill can be passed by lawmakers. A bill introduced by Rep. Ann Wagner (R-MO) would replace the DOL rule with a SEC version that is seen as more appropriate for the financial sector.

Speaking to the U.S. Chamber of Commerce in Washington D.C., Clayton said that even though the DOL rule has begun implementation, he wants to ensure that all financial professionals are treated equally under government rules.

“That doesn’t seem right,” Clayton stated. “We have our mandate; they have theirs. But I’m very hopeful that we can reach common ground. There’s enough overlap in our mandates where we can get to a place of clarity. I think that we all want the same thing: We want what’s best for the Main Street investor to save for their retirement.”

The new rule requires investment advisers to act in the best interest of their clients. However, the DOL’s version has already caused stress within the financial industry. For example, independent firms that offer products from mutual fund companies have found it difficult to provide direct business, where the investment is held with the fund company, without violating the rule’s “best interest” clause.

Small business retirement plans are also suffering, according to the FSI, with many advisers choosing not to offer services such as retirement plans, that may be flagged by the rule. In their contention, the DOL rule makes it economically unviable to provide services to smaller firms or retirees seeking advice.

Proponents continue to claim that the rule is essential in ensuring that brokers act in the best interest of their clients and avoid conflicts of interest. Mr. Clayton has stated that he believes that any reduction of investment choices for individual investors would be a failure.

“It would be extremely disappointing to me if whatever direction we go here resulted in a substantial reduction of choice for the individual investor,” Clayton said. Mr. Clayton comes from a Wall Street background where he understands full well how the law can affect the service of small business and individual clients.

“If you want to persuade us at the commission that the way you’re looking at the world is the right way to look at the world, do it through the lens of Mr. and Ms. 401(k), because that’s how we’re looking at it — their long-term interests,” he added.

The FSI has recommended that the rule be altered to streamline the BICE documentation and disclosures; create a uniform standard rule that applies to all investment professionals; revise compensation rules to fall in line with real life advice scenarios, and expand the grandfathering procedures.

The financial advocacy group feels that at a minimum, these changes will help stem the damage that is already being seen in the financial services industry.