Views on the integrity of global capital markets
28 September 2015

DC Policy Update: Bill Giving SEC Priority in Fiduciary Rule Debate Set for Review

Posted In: Fiduciary Duty, US SEC

With the US federal government heading for its third shutdown in as many annual budget battles, the House Financial Services Committee will review/edit/amend Rep. Ann Wagner’s SEC-goes-first bill this week with a view to making it ready for a vote, first in the committee, and potentially on the House floor. The date foreseen for mark-up of the Missouri Republican’s bill, known as HR 1090, is 30 September, which will be the last day of the current fiscal year and, as many expect, the last day of government operations for a while. It is what happens after that, however, that is unclear.

The Wagner bill (HR 1090) would give the US Securities and Exchange Commission priority ahead of the Labor Department in defining a uniform fiduciary standard for brokers. Such a rule would describe when, for whom, and in what circumstances securities brokers would have to put the interests of their clients ahead of their own and ahead of their firms’ interests, and when a lower, suitability standard would be acceptable. That’s a tall order, even for those who have dedicated a great deal of their lives to this matter.

As insiders, including supporters concede, however, the Wagner bill is merely one step in a much longer process. It is a process that the Dodd-Frank Act sought to address five years ago when it gave the SEC similar authority to establish a uniform fiduciary standard of care for all who provide personalized investment advice to retail investors. And still the Commission has delayed, demurred, and otherwise dodged taking a position on the tricky issue.

We’ve said it time and time again: what the SEC must do is introduce clarity and honesty into the roles that people in the investment industry play. The term “adviser,” including all derivatives of the term and any synonyms, should be expressly reserved for those who are willing to honor the fiduciary standards of the Investment Advisers Act of 1940. The term and its relevant obligations also would apply to anyone providing personalized investment advice to their clients or with investment discretion over their clients’ funds. Everyone else would be able to work for commissions and be subject to a suitability standard of care, but would have to call themselves either securities salespersons or securities brokers. This naming convention would allow customers a better opportunity to understand the role and interests that securities brokers play.

When, or even whether, HR 1090 gets to the House floor (the 114th Congress ends in December 2016) given the budget turmoil isn’t known. The sudden resignation of House Speaker John Boehner (R–OH) will create a chain of moves that some believe could affect leadership in the Financial Services Committee, thus putting priorities, agendas, and calendars for the coming year in flux.

As a standalone piece of legislation, 1090 faces a tough road in the current Congress. Even if it were to get a vote on the House floor, there is the Senate to consider. There, it would need at least 60 votes to prevent a filibuster and proceed to a vote of the entire chamber. Given that it doesn’t address what steps must be taken if it were to become law, its fate would be highly uncertain.

Long term, then, prospects for the bill are slim for this Congress. But it could still cause a ruckus in coming months.


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Image Credit: iStockphoto.com: MiguelMalo

About the Author(s)
Jim Allen, CFA

Jim Allen, CFA, is head of Americas capital markets policy at CFA Institute. The capital markets group develops and promotes capital markets positions, policies, and standards.

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