SEC’s Standard Fiduciary Rule Hampered by State Laws

December 5, 2017 by Kevin S. Kim, Esq.

Questioned in front of the House Financial Services Committee last month, Securities and Exchange Commission Chairman Jay Clayton told House members that he worries about state laws conflicting with the SEC’s standard fiduciary rule. When asked by Rep. Ann Wagner (R-MO) if he was concerned about the “patchwork” of state fiduciary laws conflicting with the new standard rule, Clayton answered, “I am.”

Chairman Clayton told lawmakers last month that the Commission is working closely with the Department of Labor on a new fiduciary rule that would be the standard throughout the financial and insurance industries. Clayton told Congress that he believed the two government agencies could cooperate in the rule’s creation saying, “The devil is in the details, and we’re working on it.”

Representative Wagner has taken a keen interest in how the SEC approaches the rulemaking, introducing the Protecting Advice for Small Savers Act, a bill designed to keep fiduciary rulemaking with the SEC. The PASS Act was introduced on September 27 and is intended to repeal the Labor Department’s fiduciary rule while establishing best-interest standards for broker-dealers.

During the hearing, Wagner said that she believes her PASS Act of 2017 provides clarity “for the investor.” “If you are sitting across from a broker-dealer and maybe you have two different accounts with them, it is important that you have the same standard. Unfortunately, that is not the current practice and that is causing both confusion and harm,” she said.

In comparing the SEC’s rulemaking to the PASS Act, Clayton said, “A lot of the themes that you outlined are the themes that I have.”

She asked Clayton how important he believed it to be to fix the regulatory confusion created under the DOL’s fiduciary standard. He responded by thanking DOL Secretary Alexander Acosta for initiating a collaboration request on the rulemaking, and that the two were working together on getting a new standardized rule proposed.

Clayton told the Committee that he believed investors should have a choice of the type of account they want to have. “There should be clarity,” he said. “I recognize that there’s not the kind of clarity that there should be in the marketplace. There ought to be consistency with us and the Department of Labor. We can’t have asymmetric standards.” He reiterated the need to cooperate across agencies saying, “They have a mandate, we have a mandate; they’re not the same, but we can cooperate and get there, I believe.”

When questioned on how long it will take the SEC to act, Clayton said that they are working on a rule proposal. “We want to work with the Department of Labor. If this were easy, it would already be fixed. We’ve got a lot to do. But I’m confident that we’re going to put forward something that addresses those four issues — and that has a standard that protects investors and that they understand,” he said.