The Fiduciary Rule (Sep. 9)

A look today at one of the most vexing and vied over Dodd-Frank rulemakings — actually two of them — the new Fiduciary Rules on the standard of care owed by brokers to customers, years in the making at the SEC and DOL but likely to see final agency action this fall.



Status of the Fiduciary Rule

Tomorrow, two House Financial Services Subcommittees will shed light on the recondite and slow-moving but bitterly fought-over set of rules mandated by Dodd-Frank to make brokers legally liable for the investing advice they give to customers.  The Oversight and Investigations Subcommittee and the Capital Markets and Government Sponsored Enterprises Subcommittee’s joint hearing on the rule is called “Preserving Retirement Security and Investment Choices for All Americans.”

What is at stake?  A White House Council of Economic Advisers analysis estimated conflicts of interest by brokers’ result in annual losses of about 1 percentage point for affected investors—or about $17 billion a year in total.  But several false starts, blown deadlines, and the multi-agency aspect of the rule-making over four years have frustrated investors and industry alike.

The two mandated rules apply to different laws governing retirement investments regulated by different agencies.  The rule proposed by the Department of Labor fits within the ERISA retirement framework while the SEC’s rule operates within the structure of the Investor Adviser Act and the Investment Company Act of 1940.

The SEC has struggled for some time over how to tackle a uniform standard of care that advisers and brokers owe to their customers.  The 2010 Dodd-Frank Wall Streetreform law required the SEC to study the issue and gave the SEC the authority to write rules but did not mandate any changes.  The SEC has worked fitfully on the rule for years under Chairs Schapiro and now White, insisting it was a short-list priority.  But the SEC did not list the fiduciary rule even in what it calls a “pre-rule stage” form in its last report in March — the forum for publicly announcing a timeline through the federal government’s official channel.  Staffers add that the two seats being vacated at the Commission only complicate the agency’s ability to craft a rule expeditiously.

As the SEC continues its work, the Department of Labor looks closer toe finish line on a parallel proposal.   It is now finalizing a rule proposed in June after holding extensive hearings on it in July.  The next step will be publishing a transcript of the hearings, which starts the clock running on the final comment period for the public to call for any last-minute changes.  The DOL is expected to release the final version of the rule by December, but it could come as soon as next month.

The Financial Services Committee is considering a bill to halt the rules and another to require the SEC to issue its proposed rule first.  Even if the Committee reports out one of the bills, resistance from Senate Democrats dims their chances down the road.  Republicans are also trying to defund the rule via appropriations bills.  Separately, Republicans are trying to defund the rule in appropriations bills as well.


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