The SEC is slated to roll out its own fiduciary rule for advisers next April, but some in the financial services industry are skeptical the commission will adhere to its own timeline or push through a final rule before Chairwoman Mary Jo White departs.
“The SEC is notorious for blowing through rule-making deadlines—both congressionally mandated and self-imposed, such as this,” says Micah Hauptman, financial services counsel at the Consumer Federation of America.
The delay comes amid increased demand for an SEC fiduciary rule following the April release of the Department of Labor's fiduciary regulation, which only governs certain kinds of retirement advice. The SEC has been authorized to draft a fiduciary rule since 2010. The updated agenda – posted to on the White House's Office of Management and Budget's website – delays the commission's deadline to next spring: A proposal was originally expected in October of this year.
“It’s an issue that’s been heightened by the DoL’s fiduciary rule,” said Duane Thompson, senior policy analyst at fi360.
Both the upcoming presidential election and vacant seats on the commission add to uncertainty over the timing and substance of a new rule.
The SEC could propose a disclosure-only rule, which would require brokers to be fully transparent with clients about any potential conflicts of interest. Alternatively, it could narrow the broker-dealer exemption of the Investment Advisers Act allowing brokers to give advice that’s “solely incidental” to their brokerage services. Critics say SEC staff currently interprets that exemption too broadly.
“The SEC, for a whole host of reasons, is going to want to harmonize its fiduciary standard as much as it can with the DOL’s fiduciary standard," says Thompson. However, he adds, don't expect perfect harmony.
“I don’t think you’re going to see the SEC go as far as the DOL’s fiduciary standard," he says.
The DoL began its rule-making process in 2010 and retracted an initial proposal amid industry backlash. The final rule has been met with strong opposition from firms and lobbying groups.
Any SEC rule likely faces similar hurdles.
“Given the fractured politics at the commission, it’s going to be an uphill battle to get something out on a 3-2 vote,” Hauptman says. “I don’t see the Republican commissioners supporting a fiduciary rule, other than one that’s incredibly weak. And then I don’t see the Democrats supporting an incredibly weak rule.”
Thompson was similarly pessimistic.
“You don’t have a fully staffed SEC, and we don’t know officially what their positions would be on the new rule,” he said. “Things could change depending on who’s elected in November.”