SEC Still Looking At Fiduciary Rule Options


In Senate testimony this week, the chair of the Securities and Exchange Commission (SEC) made clear that the SEC is not yet clear on the final direction the agency will take on proposals to expand the fiduciary standard to the retail investment advice community.

While a clear/not-yet-clear signal may seem to be too fuzzy to hold much value for agents and advisors, it definitely bears watching. That’s because what once seemed like an open-and-shut case of “the fiduciary expansion to broker/dealers is going to happen, and it’s going to happen this way” is starting to look a little less rigid.

That possibility, even though just a possibility, could be important to advocates of commission-based sales who operate under the suitability standard (rather than the fiduciary standard). These advocates include not only sellers of mutual funds, stocks and bonds but also many sellers of variable insurance products.

So what happened? In a statement before the Senate Committee on Banking, Housing and Urban Affairs, SEC Chair Mary Jo White said the staff has been “giving serious consideration to” various views on a proposal to expand the standard, as per the January 2011 SEC Study on Investment Advisers and Broker-Dealers (IA/BD Study). (As readers will recall, the proposal would apply the fiduciary standard “expressly and uniformly to both broker-dealers and investment advisers, when providing personalized investment advice about securities to retail customers.”)

Naturally, this “serious consideration” does include staff examination of the SEC IA/BD Study recommendations, as per White’s remarks posted on the SEC website.

But what is noteworthy is that White said the staff is also studying the views of investors and other interested market participants, potential economic and market impacts, and the information the staff has received in response to a SEC request in March 2013 for public comment on the staff’s fiduciary proposal.

That the staff is taking a good look around will cause some suitability proponents to let out some breath. Many of them have been calling for regulators to consider the whole enchilada for quite some time. It’s been a think-before-you-act type of campaign, and they’ve been holding their collective breath for that to happen.

In her remarks this week, White noted that she has asked the staff to make its evaluation of options a high priority. This suggests the fiduciary issue remains a matter of SEC concern — but within the context of “options.” Presumably those options could include rulemaking, but one might suppose they could also include other types of options (including “do nothing”?).

White also mentioned that the SEC staff is continuing to provide “regulatory expertise” to the Department of Labor (DOL) as DOL considers potential changes to the definition of fiduciary under the Employee Retirement Income Security Act (ERISA).

The DOL initiative is separate from the SEC’s, but industry interests have been worrying about possibilities for overlap, conflicting requirements, compliance confusion and related problems if the two federal agencies go their own way on fiduciary matters.

Among other things, White said, the SEC is having conversations with DOL about “the practical effect on retail investors, and investor choice of a new definition of fiduciary for purposes of ERISA.”

What that means and where that might lead is, as the saying goes, anybody’s guess. However, without reading too much into the comment, it would seem that retail marketplace concerns are on the table as of now.


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

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