The House Financial Services Committee will hold a subcommittee hearing on the Securities and Exchange Commission’s best interest proposal on March 14.

The hearing “Putting Investors First? Examining the SEC’s Best Interest Rule” will be held by the Subcommittee on Investor Protection, Entrepreneurship and Capital Markets at 9:30 a.m.

SEC Chairman Jay Clayton will be questioned by Committee Chairwoman Maxine Waters (D-Calif.), who took over the reins of the committee in January. Waters has criticized Clayton and the SEC in the past for not creating a higher, fiduciary standard of conduct for brokers.

Waters was one of 35 House and Senate Democrats who wrote to Clayton last year after Reg BI was proposed, asking why the SEC did not establish a uniform fiduciary standard for both advisors and brokers, which she and other lawmakers contend was mandated by the Dodd Frank Act.

Clayton appeared before the Financial Services Committee twice last summer when Rep. Jeb Hensarling (R-Texas) was chairman, where he was questioned aggressively by Waters.

“Waters has already made clear that this will be a grilling for Chairman Jay Clayton over what Reg BI will and won’t do,” said Michael B. Koffler, a partner in the law practice Eversheds Sutherland.

While “there is not an avenue for lawmakers to directly get involved with the rulemaking, they could form a resolution denouncing it, but can’t impact the proposal’s timing,” Koffler said. Clayton has said the regulation is on track to be finalized by this summer.

“We won’t see it [the hearing] slowing up rulemaking, but the real question is whether that grilling, combined with the recent letter from the North American Securities Administrators Association (NASAA) and proposals from states, will cause the SEC to come back and say there are certain conflicts that can’t be disclosed,” Koffler said

Conflicts of interest the SEC may require broker-dealers and advisors to eliminate rather than simply disclose could include broker-dealer sales contests and revenue-sharing arrangements, Koffler said.

The NASAA letter to the SEC on February 18 criticizing the rule “has a lot more force. A lot more energy” than congressional hearings, he added. “The letter was very, very critical and was basically saying ‘you’re catering to the brokerage industry and giving them free reign to provide conflicted advice if they disclose,’” Koffler added. “Instead of asking for tweaking, NASAA said: ‘Hey SEC, you’re missing the boat.’”

The SEC proposal is being viewed as more of a cosmetic fix “which is why you see states like Nevada and Maryland proceeding with their own proposals,” he said.

Rules in both states are proceeding quickly and would give brokers, sales people and dually registered advisors almost no wiggle room to exempt themselves from taking on full fiduciary duties if they work with clients in Nevada or Maryland.

Nevada is moving quickly on its proposed regulations, giving the industry until Friday to comment. “The proposed rule applies a fiduciary duty and defines investment advice, which is the linchpin upon which the proposal is built,” said Holly H. Smith, a partner with Eversheds Sutherland.

The rule would make it difficult for brokers to rely on episodic exemptions from the Nevada fiduciary rule. Firms now use such exemptions at the federal level to sidestep fiduciary standards. In contrast, in Nevada an episodic exemption “is not something you can claim and be safely within a safe harbor,” Smith said. “It can be revoked later if it turns out you weren’t applying it properly.”

Providing advice on fee options, the kind of account a client should open, a limited list of investments or even referrals to other financial professionals would all open advisors up to the fiduciary standard.

At the same time, the Nevada rule prohibits charging a fee that is “unreasonable” without defining what is or isn’t unreasonable in the proposal, Smith said.

The Nevada proposal would also give investors a private right of action to sue advisors for breach of fiduciary duty, among other offenses.

“This should be on everyone’s radar at this point. The client can recover the amount of loss, all costs of litigation and fees,” Smith said.

Maryland fiduciary legislation is also moving quickly, with hearings scheduled on the “Financial Consumer Protection Act” for March 12 and 13.

The legislation extends a fiduciary standard to broker-dealers, broker-dealer reps, insurance agents, investment advisors, advisor reps and federally covered advisors. “When providing advice, these persons would be required to act in the best interest of customers,” said Bria M. Adams, an associate with Eversheds Sutherland.