Business Model

“The vast majority of people in the brokerage industry think they can comply with the SEC rule, that it’s not a threat to their business model,” said Hardy Callcott, a partner at Sidley Austin LLP in San Francisco and a former general counsel of Charles Schwab Corp. “The DOL rule is much more of a threat, and is the focus.”

Sifma has long called for the SEC to take the lead on any new regulations, a position that could potentially slow or derail the Labor Department.

While the SEC’s involvement provides the brokerage industry another front for battling the White House plan, it also gives the Labor Department cover to proceed on its own, according to interviews with government officials and advocates on all sides. And despite the wishes of the biggest bank lobbying groups that the SEC take the lead, it is too far behind to slow down the Labor Department proposal, which is personally endorsed by President Barack Obama.

Complex Proposal

“The administration is now all in,” Robert Doyle, a lobbyist for Prudential Financial Inc., said last week at a conference. “It would be a big step backward to come up short in not getting this rule done.”

White has made no promises. She acknowledged the rule proposal will be complex and could be disruptive, and said that there are limits on how much the SEC can alter the industry and its practices.

Industry groups say the stakes are high because the Labor Department’s conflict-of-interest rules are much stricter than the SEC’s. Under the retirement-security laws, brokers couldn’t recommend investors buy in-house mutual funds without a specific exemption from the Labor Department. Under the laws enforced by the SEC, brokers can do so as long as they disclose any major conflicts of interest.

‘Unfortunate Outcome’

Having two completely different legal regimes to follow “would be a very unfortunate outcome,” said David Bellaire, general counsel of the Financial Services Institute.

“It is clear that the SEC, with an 80-year history of regulating the securities markets, has a depth of knowledge and expertise that is unmatched,” Bellaire said. “We and other trade organizations will be working to ensure that the SEC moves forward with its rulemaking.”

That may be easier said than done.

The agency has a crowded agenda that includes writing new regulations for asset managers, high-frequency traders and market structure. And fiduciary duty hasn’t been a top priority for White, who gave the issue only an off-handed mention in a major speech last month that laid out her policy goals.

In addition, the SEC’s staff has yet to begin drafting a regulation, a process that can take months if not years.