SEC Closer to an ERISA Fiduciary Standard?

A recent analysis suggests that the SEC’s take on a fiduciary standard may be inching closer to that of the DOL.

In “SEC Enforcement Slowly Tilting Fiduciary Needle toward ERISA,” an article appearing on the Corporate Compliance Insights website, Duane Thompson argues that “the SEC’s examination and enforcement arms appear to be moving closer to ERISA’s fiduciary standard mandating reasonable compensation for investment advice” by focusing on compensation received for rollover advice and on fees that result from the use of mutual fund share classes in retail and retirement accounts.

Thompson outlines the differences between the two agencies, noting that the SEC generally relies on disclosure of conflicts in mitigating fiduciary breaches, while the DOL looks to “more proactive measures.”

Thompson considers it “challenging” to harmonize the SEC’s and DOL’s approaches, but contends that the SEC’s inspection and enforcement arms “are slowly forging ahead by imperceptibly moving the regulatory needle in favor of the DOL’s higher standard for advice givers.” And he says that the SEC and DOL “are intent on trying to make it easier for firms and their advisors to comply with their respective fiduciary standards.”

The challenges to be met in arriving at a more common approach, Thompson says, are that the SEC must:

  • consider how to fine-tune its rules for stockbrokers and investment advisers that offer retail investment advice;
  • attempt to harmonize any new fiduciary rule for brokers and advisors with the DOL’s requirements for ERISA fiduciaries; and
  • work with state insurance regulators to try to mesh its rulemaking with state insurance rules.

There are other challenges, Thompson argues, including that ERISA does not make the same requirements of the SEC that it does of the DOL regarding prohibition of excessive fees. In addition, he says, the SEC may face opposition from the brokerage industry if it imposes a fiduciary standard under the Advisers Act.

Despite the challenges to harmonization, says Thompson, “the SEC staff seems to be moving forward on its own, perhaps prompted by class-action trends under ERISA in which participants have scored notable court victories in excessive fee cases.” That, he says, is resulting in the SEC “beginning to articulate a more robust fiduciary standard that is lining up more closely with ERISA’s higher standard of accountability for fiduciaries.”

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