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SEC is Rethinking its Own Fiduciary Rule

By Alex Padalka June 2, 2017

The SEC has started a review of the standards of advisor conduct following a request from the Department of Labor for the SEC to assist the agency in drafting a fiduciary rule, according to a letter from SEC chairman Jay Clayton.

“I welcome the Department of Labor’s invitation to engage constructively as the Commission moves forward with its examination of the standards of conduct applicable to investment advisers and broker-dealers, and related matters,” Clayton writes on the SEC’s website.

The agency is seeking public comment on an extensive list of questions aimed at assessing investors’ opinion in areas such as the clarity between various types of advisors, conflicts of interest, robo-advisors, fee-based and commission-based advice, the definition of “retail investors” and the effects of the DOL’s fiduciary rule, which goes into partial effect June 9.

The SEC is also asking for comment about the pros and cons of having “multiple standards of conduct.” Some opponents of the DOL’s fiduciary rule, which requires only retirement advisors to put clients’ interests first, have argued that the SEC should roll out a rule that would apply to all advisors instead.

The SEC is also seeking comment on whether it should pursue a disclosure-based approach rather than outright regulatory action, and whether it should roll out regulations and guidance incrementally instead of all at once. It’s also inviting opinion about how similar rules have affected retail investors outside the U.S.

The SEC doesn’t give a timeline for the public comment period nor subsequent steps.

Clayton notes that the SEC has been studying its regulations of advisor conduct since 2006 and has considered various approaches to protecting retail investors, including a best-interest standard, enhanced disclosures, a universal standard or maintaining the status quo. He also writes that coordination between regulatory bodies, in addition to clarity and consistency, is key for adequate regulation.

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Labor secretary Alexander Acosta said last month that the DOL will partially implement the rule next week, without further delay.

The agency had delayed the Obama-era rule, originally scheduled to go into effect in April, by 60 days following a memorandum from president Donald Trump directing the DOL to review the rule again. Acosta also signaled that DOL will continue the review ahead of the full implementation date at the start of next year.