There’s a gap between the White House and Wall Street’s main regulator over a push to tighten broker rules. To the investment industry, it’s an opening to exploit.
The Securities and Exchange Commission was missing last month when the White House unveiled the plan that roiled the financial industry. The proposal, crafted by the Labor Department, would require brokers to put retirement savers’ interests ahead of their own in an effort to eliminate what it calls biased advice that costs investors billions of dollars annually.
The SEC, which oversees the brokerage industry as a whole, has studied for years whether to impose a broader regulation that would cover all investors, not just those saving for retirement. The industry says the decision to move ahead without the SEC would burden brokers with two sets of rules -- one for retirement accounts, one for all others -- and confuse investors.
“If the SEC saw a problem with how investment advice is given, I’m sure they would act on it,” Francis Creighton, chief lobbyist of the Financial Services Roundtable, said in an interview. “This is squarely in the SEC’s jurisdiction.”
The White House’s move leaves Mary Jo White, chair of the independent SEC, in a tough spot, weighing whether to follow the administration or forge her own path. Already she has been barraged by fellow commissioners, industry executives, consumer groups and lawmakers. Her silence ensures that the SEC will be drawn into the middle of what promises to be one of the most bruising Wall Street lobbying battles in years.
Fiduciary Duty
Under current rules, brokers must make “suitable” recommendations to clients, meaning the investments have to fit the customer’s needs and tolerance for risk. The Labor Department rule would impose a so-called fiduciary duty requiring brokers who manage retirement money to put their clients’ interests first.
All eyes are now on White, who said in November that she planned to disclose her position in the coming months. She is considering delivering a speech on the issue in the coming weeks, according to two people familiar with the matter.
White has been studying options for new rules since late last year, when the agency’s staff presented her with alternatives, including rules that would hold brokers and investment advisers to the same fiduciary standard, the people said. That option was endorsed by SEC staff in a 2011 report.
The staff also suggested a watered-down measure, such as requiring brokers to disclose conflicts of interest on a form filed with the SEC, the people said. They told White that a strict fiduciary-duty rule would be staunchly opposed by Wall Street.