As the first millennial to take the reins of the North American Securities Administrators Association, Vermont Financial Regulation Commissioner Michael Pieciak, 35, has his eye trained on some pressing goals. For one, he wants to work with the Securities and Exchange Commission to encourage the agency to add a broker fiduciary-like standard to its controversial Reg Best Interest proposal.
“I think there is a benefit to having a national fiduciary standard and working with the SEC to get that, but states still have the responsibility to protect investors,” Pieciak told Financial Advisor magazine.
The former Skadden, Arps, Slate, Meagher & Flom attorney, who became NASAA president in September, said he has already had productive meetings on NASAA’s goals with SEC Chairman Jay Clayton, SEC commissioners and the SEC drafting committee. He expects to deliver a follow-up letter to the agency soon. It will be NASAA’s third comment letter on the SEC’s proposed Reg Best Interest.
NASAA’s position on a fiduciary standard for brokers represents an attempt to coax the SEC towards a more investor-friendly approach. It comes after the Trump Administration’s Department of Labor vacated its own fiduciary rule promulgated during the Obama administration. Ever since, the SEC has struggled to craft its own Best Interest standard and encountered widespread opposition from various consumer and advisor organizations.
The SEC’s Reg BI is a controversial proposal that would require brokers to mitigate their conflicts of interests, but does not require them to be fiduciaries, critics say. Broker conflicts cost investors some $18 billion annually in added fees, commissions and inferior investment performance, according to a White House report.
It remains to be seen whether the SEC will be able or willing to implement a rule requiring brokers to meet fiduciary standards when working with clients. “At this time, we don’t have any plans to pursue a model fiduciary regulation, but if Reg BI is viewed by state regulators and legislators as not going far enough to deliver fiduciary standards to the broker-dealer community, I wouldn’t rule that out,” Pieciak added. Both New Jersey and Nevada have passed or are pursuing their own fiduciary standards, but experts don’t expect there to be a deluge of copycat state legislation or regulation.
At this point, Pieciak said, he is “totally focused on engaging with the SEC on what we view as improvements to Reg BI. We will provide the chairman with additional documents and examples, which we look forward to submitting. We think Reg BI has a lot of good in it. It was a step up for the broker-dealer community in terms of a conduct regulation, but we do take some issue with the guidance and pointed out where we think it may nullify investor best interests,” the regulator added.
“Another concern is the level where disclosure alone can totally satisfy conflicts of interest,” said Pieciak, who has been following evidence of investor confusion that has surfaced in the SEC’s own testing of the proposal and its ancillary customer relationship summary (CRS). The disclosure document is supposed to clearly explain to investors the differences in advisor and broker fees, services and legal protections, but appears to fall short.
“There are other industries where disclosure alone doesn’t mitigate conflicts either,” the NASAA president said.
The association will also focus on how the SEC proposal applies conduct standards to IRA rollovers. The need to apply Reg BI to rollovers is “something we’ll highlight and focus on,” he said.