(Bloomberg) -- When SEC Chair Mary Jo White backed tighter rules for brokers last week, her words were greeted with cheers, oddly, by both supporters and opponents of the controversial plan.
The rare consensus underscores just how little anyone knows, so far, about how any rule might look. Still, even before the details are out, White's move to insert the agency into the debate has given ammunition to both Wall Street firms and consumer groups in the biggest financial policy battle in Washington.
At issue is an Obama administration effort to stop what it calls biased financial advice that is costing investors billions of dollars. The Labor Department will soon issue a plan to force brokers to adopt a fiduciary duty to put retirement clients' interests ahead of their own. White said she supports imposing a similar standard on all brokers for retail investors.
Lawmakers will have their first opportunity on Tuesday to question White about her plans to begin developing a fiduciary duty standard, which she aired for the first time at a securities industry conference last week. Her remarks came during a question-and-answer session rather than in a prepared speech, leaving no official text for the legions of industry lawyers to parse.
"We were really happy that she came out publicly, but we're still a long way away from the SEC moving forward with a rule," said Micah Hauptman, financial services counsel at the Consumer Federation of America, which supports the stricter rules. "Realistically speaking, we are years away from that."
In prepared remarks for Tuesday's hearing, White didn't elaborate significantly. She reiterated that she will be discussing the standard with her fellow commissioners and staff in the near term.
Under current regulations, brokers must make "suitable" recommendations, meaning the investments have to fit the customer's needs and tolerance for risk. The White House has said the system fosters conflicts of interest for brokers, who often reap fees from mutual funds and other companies to sell their products. Such arrangements cost retirement investors $17 billion a year, the Council of Economic Advisers found.
SIFMA, the brokerage industry's main trade group, has said that estimate is wrong. In a white paper released Monday, SIFMA also said that the White House didn't adequately consider the effectiveness of the SEC's current rules.
"The vast majority of people in the brokerage industry think they can comply with the SEC rule, that it's not a threat to their business model," said Hardy Callcott, a partner at Sidley Austin in San Francisco and a former general counsel of Charles Schwab. "The DOL rule is much more of a threat, and is the focus."
SIFMA has long called for the SEC to take the lead on any new regulations, a position that could potentially slow or derail the Labor Department.
While the SEC's involvement provides the brokerage industry another front for battling the White House plan, it also gives the Labor Department cover to proceed on its own, according to interviews with government officials and advocates on all sides. And despite the wishes of the biggest bank lobbying groups that the SEC take the lead, it is too far behind to slow down the Labor Department proposal, which is personally endorsed by President Barack Obama.
"The administration is now all in," Robert Doyle, a lobbyist for Prudential Financial, said last week at a conference. "It would be a big step backward to come up short in not getting this rule done."
White has made no promises. She acknowledged the rule proposal will be complex and could be disruptive, and said that there are limits on how much the SEC can alter the industry and its practices.
Industry groups say the stakes are high because the Labor Department's conflict-of-interest rules are much stricter than the SEC's. Under the retirement-security laws, brokers couldn't recommend investors buy in-house mutual funds without a specific exemption from the Labor Department. Under the laws enforced by the SEC, brokers can do so as long as they disclose any major conflicts of interest.
Having two completely different legal regimes to follow "would be a very unfortunate outcome," said David Bellaire, general counsel of the Financial Services Institute.
"It is clear that the SEC, with an 80-year history of regulating the securities markets, has a depth of knowledge and expertise that is unmatched," Bellaire said. "We and other trade organizations will be working to ensure that the SEC moves forward with its rulemaking."
That may be easier said than done.
The agency has a crowded agenda that includes writing new regulations for asset managers, high-frequency traders and market structure. And fiduciary duty hasn't been a top priority for White, who gave the issue only an off-handed mention in a major speech last month that laid out her policy goals.
In addition, the SEC's staff has yet to begin drafting a regulation, a process that can take months if not years.
White also faces resistance internally from her two Republican colleagues on the commission. One, Daniel Gallagher, recently questioned the need for a rule, asking whether the SEC would be looking to solve a problem or "appeasing the White House."
That forces White to negotiate the outlines of the policy with the SEC's two Democrats, Luis Aguilar and Kara Stein. Aguilar has said the agency should move with haste on a rule.
The Labor Department is already pushing ahead; its proposal is undergoing a final administration review before it will be released for public comment. With the SEC lagging, the industry says it needs to move quickly.
"It would at least be good for the SEC to figure out what it is going to do so everybody can see how the two proposals would work together," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness. "With the White House supporting the Labor Department, there is real fear about what the result will be, which is even more confusion for investors."
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