More On Legal & Compliancefrom The Advisor's Professional Library
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Rep. Steve Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises, along with other Republican members of the committee, told Securities and Exchange Commission (SEC) chairman Mary Schapiro in a March 17 letter to not move forward with a fiduciary duty rule as “the Commission has not identified and defined clear problems that would justify a rulemaking and does not have a solid basis upon which to move forward.”
Garrett and other members of the committee said that while Section 913 of Dodd-Frank gives the securities regulator the “discretion to adopt a fiduciary duty rule” for brokers, “it does not mandate it, and in no way suggests a congressional intent that the Commission move forward on such a rulemaking without sufficient basis.”
The Subcommittee plans to hold a hearing in the “coming weeks,” Garrett told Schapiro, on not only the fiduciary duty rulemaking but also on the SEC’s study mandated under Section 914 of Dodd-Frank, commonly referred to as the self-regulatory organization (SRO) study. Garrett said that “the oversight, examination and enforcement programs that different financial services providers are subject to must be considered concurrently” with a fiduciary duty for brokers.
Before pressing ahead, the SEC should conduct a “thorough cost-benefit analysis,” Garrett says as requested by the two Republican Commissioners, Kathleen Casey and Troy Paredes.
Industry executives were quick to weigh in with their thoughts about Garrett’s letter.
David Tittsworth (left), executive director of the Investment Adviser Association (IAA) in Washington, says that the letter to Schapiro “underscores the fact that the issues surrounding Section 913 remain controversial.” He adds that while the SEC has “clear authority” to proceed with a fiduciary rulemaking, “the letter lends some additional weight to the dissenting opinions filed by Commissioners Casey and Paredes.”
Any fiduciary rulemaking must have the support of a majority of Commissioners.
Indeed, Dan Barry (right), managing director of government relations and public policy for the Financial Planning Association (FPA), adds that while the SEC does have the authority to move ahead with a fiduciary rulemaking, “it would be very challenging to do so over the objection of two [SEC] commissioners” and the SEC’s oversight committee in Congress, which is Garrett’s committee.
Kristina Fausti, director of legal and regulatory affairs for Fiduciary360 (fi360), agrees that the separate statement accompanying the SEC’s study under Section 913 from Commissioners Casey and Paredes along with the letter from Garrett and other members of the House Financial Services Committee, “likely creates a higher barrier of entry for such new [fiduciary] rules that will require the SEC to ensure it adequately states the issue investors are facing and provides thorough data and analysis showing how any new rules address the issue and increase investor protection in a substantial way.”
That being said, “the larger context of the SEC’s mission to protect investors’ interest will be of the greatest importance,” Fausti argues. “If the SEC believes it has good investor protection reasons to move forward with new rules implementing a fiduciary standard for brokers, it will do so.”
Barry with FPA adds that the Committee members’ “call for more empirical justification shouldn’t detract from the fundamental problem that investors are getting advice under two different standards, with some getting advice that’s not necessarily in their best interests.”