Fiduciary Rulemaking Might Stall Again


Daniel M. Gallagher, one of the five commissioners on the Securities and Exchange Commission (SEC), is clearly not in favor of the SEC rushing ahead on rulemaking regarding the fiduciary standard and to perform related harmonization.

In a recent speech, he said the SEC should “get all of the facts” before issuing any rule on broadening the fiduciary standard to include broker/dealers.

The comments are surprising, given that he expressed them in a public forum about the five-member commission of which he is a voting member.

It’s also surprising since the SEC has been looking into the broadening the standard for over three years. It has the go-ahead to adopt such rules from Section 913 of the Dodd-Frank Act. In addition, the SEC has gathered mountains of comments, data and analysis from a wide variety of sources, both pro and con. Do the commissioners need even more information before going to a vote up or down?

In fact, the SEC has gathered so much information in this area that many SEC watchers have been predicting the federal regulator would issue rules this year. Actually, many expected to see rule promulgation last year, but when that never happened, the group-think shifted to “2014 is the year.”

Based on Gallagher’s pointed remarks, though, 2014 may be a no-go too, at least where his own position is concerned.

The remarks came in a lengthy speech before the Annual Rocky Mountain Securities Conference in Denver.

In the published text of those remarks, Gallagher reminded the audience that Section 913 of Dodd-Frank Act “authorized, but did not require” the SEC to adopt duty of care rules for brokers/dealers. He added that the SEC still needs to complete almost 60 other Dodd-Frank rulemakings, which are mandated.

In view of this, he said, “I question the wisdom of rushing into purely discretionary Section 913 rulemaking, especially when the purported substantive impetus is the potentially false narrative that broker/dealers represent a greater potential threat to retail investors than investment advisors.”

“The truth is that we simply don’t know whether or not that is the case. There have been far too many laws and regulations that stemmed directly from false narratives of the financial crisis and its causes.

“The commission should slow down and get all of the facts before adding to the long list of rules resulting from these false narratives.”

By comparison, SEC Chair Mary Jo White has taken a low-key approach to the subject. For example, in February testimony before the Senate Committee on Banking, Housing and Urban Affairs, White indicated that the commissioners are giving “serious consideration” to the fiduciary and harmonization recommendations in a SEC staff study required by Section 913. This is part of “deciding whether — and if so, how — to exercise our rulemaking authority,” she indicated. But White did not say whether a rule was on the table or divulge her position on the subject.

SEC commissioners are allowed to make speeches and present their own opinions. Still, when one commissioner calls for a slow-down in a public forum, it’s a good bet that there is some molasses in the pot somewhere.

That’s a heads up for agents, advisors and their professional organizations, many of which have pitched tents on one side or the other of the fiduciary divide. This might be the time to lay in enough provisions to wait out a lull in the action.

But they probably won’t want to go home. After all, the Department of Labor could stir things up if it issues its own fiduciary proposal — the long-promised revision of its 2010 fiduciary proposal for employer-based retirement plans. Many people expect that proposal to come out this year. Of course, people said that last year too, and nothing happened.


Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Connect with Linda →

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