WASHINGTON -- Just a day after a top SEC official hinted at discord within the commission about an expansion of fiduciary rules to include brokers, a voting member of the agency spoke out in opposition to the proposal, at least until supporters can build a stronger case.

Speaking at FINRA's annual conference, Commissioner Daniel Gallagher said that he believes that the jury is still out on whether it would be in the best interest of investors to extend fiduciary responsibilities to brokers, or that the benefits would outweigh the costs.

Gallagher said that he remains skeptical about the recommendations of a staff report that an SEC advisory board issued last year endorsing a uniform fiduciary standard. It's still too early to make a determination, Gallagher argued, noting that the commission is still sorting through the volumes of comments it received regarding the cost-benefit tradeoff of the potential rules.

"I've got to tell you, I'm not yet convinced, based on anything I've seen or heard, whether it’s the study or what we've gotten feedback on from the economic analysis request, that indicates that we need to do a rulemaking," Gallagher said.

The Dodd-Frank Wall Street reform bill granted the SEC the authority to impose a fiduciary duty on broker-dealers, but did not mandate it. Currently, brokers are only required to recommend investments that are deemed suitable for retail clients. Supporters of a uniform set of rules argue that retail investors are entitled to expect a consistent standard of advice from their financial advisors, regardless of whether it comes from a broker or an RIA.

SEC Chairman Mary Jo White has said that she hopes to advance the proposal this year, though she recently told members of Congress that she had directed commission staff to develop a menu of options that would include alternatives to a strict uniform fiduciary standard. Gallagher said on Tuesday that he had yet not seen any of those recommendations, but urged the SEC to work diligently through the economic analysis and let the results determine how the commission proceeds.

"I don't actually believe that we should start from the presumption that there should be a rulemaking," he said. "I think we should start from the exact opposite presumption—it's no until somebody proves that it makes sense, that it addresses these issues of investor confusion, and that the costs don't outweigh the benefits. And I'm not there yet."

Where Gallagher is interested in seeing the SEC move in the advisor arena involves oversight—specifically, how to marshal more resources to increase examinations of the more than 11,000 advisors under its purview.

Gallagher reiterated a proposal he outlined in a recent speech in Denver where he suggested that the SEC consider authorizing third parties to conduct RIA examinations. That idea recalls a failed legislative effort from 2012 when the chairman of the House Financial Services Committee briefly tried to move a bill directing the SEC to designate a self-regulatory organization to take on oversight of advisors.

Gallagher is suggesting that the SEC could act on its own, without congressional authorization, to push through rules that would require advisors to enlist the services of a third party to conduct practice exams. The third party would not necessarily be an SRO, like FINRA, which was a central point of the controversy two years ago, but could include audit firms, exchanges or other bodies, Gallagher suggested.

Gallagher acknowledged that many details—such as how the SEC as a central regulator would oversee the third parties—would need to be fleshed out, but insisted that the current rate of a seven-year exam cycle for advisors presents an "existential crisis" for the agency. He described the SEC's current advisor oversight responsibilities as an "unfunded mandate by Congress," and said he worries that with limited resources available for exams, the commission could fail to catch the next Bernie Madoff or Allen Stanford.

"We are just sitting there as an institution with our chin out waiting to get pummeled, and I worry about it, I worry about it for the agency," Gallagher said. "I think we need help."

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