Clayton Says SEC ‘Pushing’ on Fiduciary Regulation

Noting that the effects of the Labor Department’s fiduciary rule “extend well beyond the DOL’s jurisdiction,” the Chairman of the Securities and Exchange Commission told lawmakers the SEC is working with the sister agency to “best serve the interests of investors.”

In a hearing dominated by the recent admission by the SEC that its EDGAR system had been “hacked” a year ago, there were questions – and concerns expressed – about the role the SEC was planning to play with regard to coordination with the Labor Department on the fiduciary regulation.

“While the SEC and the DOL have different statutory mandates, rulemaking processes and jurisdictions, actions taken by one regarding standards of conduct are going to have a significant effect on the other’s regulated entities and the marketplace,” Chairman Jay Clayton acknowledged in testimony before the U.S. Senate Committee on Banking, Housing and Urban Development this week. “It is important that we understand these effects and work closely and constructively with DOL to implement appropriate standards of conduct for financial professionals who provide advice to retail investors,” he said.

“This is a priority for me,” Clayton said of a potential SEC fiduciary rule. “We’re pushing this one. This is the top of my list.”

Clayton, citing staff conversations with investors and firms, as well as press reports, noted that broker-dealers “are considering, and some have started taking, a variety of actions to comply with the DOL Rule.” He specifically noted:

  • increasing compliance resources and efforts (e.g., disclosure, documentation and training, in particular, with respect to costs and rollover recommendations);
  • increasing the use of robo-advice; and
  • reevaluating and changing the types of products and accounts (and related fees) offered to retirement investors, focusing particularly on products or accounts that would address the compliance requirements driven by the Best Interest Contract Exemption (e.g., shifting some or all of their retirement accounts to level-fee advisory accounts).

Clayton also noted that mutual fund complexes are considering various approaches to accommodate broker-dealers’ efforts to level compensation across similar types of products in response to the DOL Rule, including:

  • issuing “clean shares” that do not have any sales loads, charges or other asset-based fees for sales or distribution (thus allowing brokers to set their own commissions that would be paid directly by investors); and
  • issuing “T-shares” – or “transaction shares” – that have uniform sales charges across all fund categories.

“While the SEC and the DOL have different statutory mandates, rulemaking processes and jurisdictions, actions taken by one regarding standards of conduct are going to have a significant effect on the other’s regulated entities and the marketplace,” Clayton said. “It is important that we understand these effects and work closely and constructively with DOL to implement appropriate standards of conduct for financial professionals who provide advice to retail investors.”

Clayton also referenced his previous request for public input on standards of conduct for investment advisers and broker-dealers, and said that to date, the SEC has received more than 150 comments from investors and the industry, “expressing a range of views.”

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