In 2011, the SEC staff issued a report calling for a uniform fiduciary standard for brokers and advisors. The idea was supported by SEC Chairwoman Mary Shapiro, but harshly opposed by the two Republican members of the Commission. They said the report failed to provide evidence that investors were “being systematically harmed or disadvantaged.” They also questioned whether a uniform standard would eliminate investor confusion.
In 2015, the DOL proposed a new rule expanding the definition of “investment advice fiduciary” and modifying related regulatory interpretations (i.e. prohibited transaction exemptions). The DOL’s proposal swept individual retirement accounts (IRAs) under ERISA’s fiduciary umbrella for the fist time. Again, the rule was strongly opposed by the brokerage and insurance industries.
In 2015, SEC Chairwoman Mary Jo White announced her support for a uniform fiduciary standard for brokers and advisors. She was no more successful than Chairwoman Shapiro in garnering the needed support among fellow SEC Commissioners to advance the idea.
In 2016, the DOL finalized its new fiduciary rule and related changes to its prohibited transaction exemptions. These regulations applied to brokers and advisors working with retirement plans, including IRAs, but did not affect brokers or advisors operating outside the retirement plan environment. The applicability date was set for April 10, 2017.
Brokerage industry representatives, among others, filed a series of lawsuits throughout the country challenging the new DOL regulations. Brokerage industry representatives also successfully lobbied members of Congress to introduce legislation to kill the DOL regulations.
In February 2017, the Trump administration ordered a review of the new DOL regulations. Ultimately, the applicability date for a portion of the new regulations was moved to June 9, 2017. Implementation of other portions—those that were most objectionable to the brokerage industry—was delayed until July 1, 2019. The rule is now under review and its fate is uncertain.
That Was Then And This Is Now
On May 4, 2017, Jay Clayton was sworn in as SEC chairman. He was aware of his agency’s persistent failure to make progress on establishing standards of conduct for brokers and advisors who provide investment advice to retail investors. He also knew the DOL’s activities in this area had a direct impact on many firms under the SEC’s regulatory supervision.
On June 1, 2017, Chairman Clayton expressed his willingness to “engage constructively” with the DOL as both agencies pursued the ongoing analyses of their options. He also sought public comment on a laundry list of questions, including the following potential action
1. Maintaining the existing regulatory structure.
2. Requiring enhanced disclosures to mitigate investor confusion.
3. Developing a separate best interest standard for brokers.
4. Developing a uniform standard of conduct for brokers and advisors who provide personalized investment advice to retail investors.