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After DoL Rule, SEC Inches Toward Uniform Fiduciary Standard

Now that the Department of Labor has issued its final rule on fiduciary advice in the retirement sector, is the SEC going to follow suit and press ahead with its own fiduciary regulation?

Sen. John Boozman (R-Ark.) put that question to SEC Chairwoman Mary Jo White Tuesday. He expressed concern that the DoL has set the agenda regarding rules for advisors, but worried the department's actions could limit access to advice for lower-income savers planning for retirement.

"This is certainly a very complicated issue and the SEC has more knowledge and technical expertise in this area, in this arena, yet DoL has inflexibly pushed forward first," Boozman said. "Where's the SEC in its process of considering fiduciary changes?"

White wouldn't take the bait.

"We are independent agencies, and they have authority over the ERISA space, obviously, and have pursued their rulemaking because of that responsibility," she said, referring to the 1974 Employee Retirement Income Security Act that laid out a regulatory framework for retirement plans.

However, White reiterated her belief that fiduciary reform is in order at the commission, and that the SEC should harmonize the rules for investment advisors and broker-dealers serving retail clients.

But that effort has been slow to develop, even as White has directed staffers to draft a potential framework for a uniform fiduciary standard.

"They're working very hard on that. They have provided an outline of their thinking and recommendations to my fellow commissioners, so that's in dialogue," she said. "I have to emphasize, though, the SEC looked at this issue for many, many, many years. It's complicated. It's not quick, so we're still proceeding."

Boozman echoed many critics of the DoL's rule on Capitol Hill when he argued that the new fiduciary regulation further complicates an already challenging situation, and could curtail the availability of financial advice for less affluent investors.

"Inconsistent rules at the SEC and the Department of Labor governing fiduciary standards continue to cause uncertainty and confusion," he said. "I remain concerned that DoL's proposal could limit affordable retirement options for low- and middle-income Americans."

White appeared before the Senate Appropriations Committee's Subcommittee on Financial Services and General Government to make her case for an 11% budget increase for fiscal 2017. Advisors would be among the most affected if Congress were to approve that increase, as White  indicated that a top priority is to increase examinations of RIAs.

"When I'm up here talking about the big gap in coverage, I'm talking about the investment advisor side, which doesn't have nearly enough resources," White said.

Other priorities at the SEC include cybersecurity, economic risk and analysis, and the data analytics that the commission has been rolling out to better target its examination and enforcement resources. White also spoke of enhancing oversight of FINRA as it takes on more responsibility for policing broker-dealers. (FINRA currently conducts about 80% of broker-dealer exams.)

If the SEC receives its requested appropriation of $1.78 billion, White said the agency would seek to hire an additional 250 staffers. More than half of those would join the Office of Compliance Inspections and Examinations team, primarily focused on increasing advisor reviews.

White testified alongside Tim Massad, the chairman of the Commodity Futures Trading Commission, who also appealed to lawmakers for a budget increase for his cash-strapped agency.

On the fiduciary front, White emphasized that the decision is not hers alone to make, and that her fellow commissioners will have to get behind any rulemaking initiative that could come out of the staff recommendations. "I'm one vote of five," she told Boozman.

White is one of three commissioners; the others are Democratic member Kara Stein and Republican member Michael Piwowar. President Obama's nominees to fill two SEC vacancies have been awaiting confirmation by the Senate. 

So it remains an open question how far the SEC might advance a uniform fiduciary standard before a new administration comes into office and installs a fresh batch of regulators.

White stressed that the fiduciary issue has been the subject of a very deliberate process within the commission, and tried to assure lawmakers that she is working to avoid the adverse unintended consequences that Boozman and others have warned could arise from the Labor Department's new rule.

"If we, at the end of the day, were to have the impact of our rule be that we deprive the lower end -- particularly retail investors -- of reasonably priced, reliable advice, we would have failed in our objective," White said. "And so we're very focused on that."

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