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Thursday, April 19, 2018

Clayton Makes His Fiduciary Stand

News summary by MFWire's editors

As the Department of Labor's fiduciary reg floats in limbo, Jay Clayton is taking a stab at replacing it with something broader.

Yesterday afternoon Clayton, Chairman of the Securities and Exchange Commission (SEC), proposed the SEC's own take on a fiduciary reg (really three related regs), and most of his fellow commissioners lined up in support. Fundsters and the rest of the public now have 90 days (a standard public comment period for rules) to chime in with their reactions. The proposal includes a proposed "regulation best interest", a proposed "investment adviser interpretation", and a proposed "form CRS relationship summary."

Here's an SEC overview of the proposal package, which spans 916 pages in total.

InvestmentNews reported on the details of how yesterday's SEC open meeting went down, noting that SEC Commissioner Kara Stein (a Democrat) was the lone dissenter in the vote to propose the new regs.

"This was truly a Herculean task done in a very short period of time," Stein said at the hearing, ThinkAdvisor reports, adding that the proposal "requires and mandates few disclosures."

In broad strokes, Clayton laid out the proposal package's three pieces as raising broker-dealer standards for dealing with retail investors (to a best-interest standard, from the current suitability standard), clarifying standards for RIAs, and requiring a new kind of standardized disclosure (four pages or less) that lays types of services offered, legal standards applicable, fees paid by the customer, and conflicts of interest.

"We are framing the issues and proposed a comprehensive path forward on which we anticipate and welcome robust public comment," Clayton stated. "[The proposal package] reflects our efforts to fill the gaps between investor expectations and legal requirements, thereby increasing investor protection and the quality of advice, while preserving investor access and investor choice, recognizing that access and choice are driven by what is available and how much it costs."

Clayton publicly stepped into the fiduciary reg debate last June when he issued a fact-finding RFI on the subject. The Investment Company Institute (ICI), a fundster trade group, has long called for the SEC to intervene in the fiduciary reg debate with a more universally applicable standard than the DoL's, and thus ICI president and CEO Paul Schott Stevens promptly issued a brief a statement yesterday in support of Clayton's proposal package, while noting that the trade group still needs to review the package details before commenting further.

Dale Brown, president and CEO of the Financial Services Institute (FSI) (a trade group for independent broker-dealers), has also chimed in brief support of Clayton's move, while still reserving further judgment for review of the details. The Financial Planning Coalition (FPC) also issued a brief statement of tentative support.

Stay tuned for the coming debate, or battle, over the SEC's fiduciary reg. Financial Planning and InvestmentNews weigh in on the divide, and CityWire, Reuters, and the Wall Street Journal have also reported on the SEC's proposal package.

In assessing the SEC's move, Moody's analyst Rokhaya Cisse highlights the self-professed reluctant proposal package support at SEC Commissioner Robert Jackson (the other Democrat). Cisse muses that Jackson's stance "reveals the SEC's true intention — that it had to act to catch up with an industry that has already accepted investors' demand for greater transparency, simplicity, and a higher standard of care than what currently exists."

"So the expenses incurred by companies to prepare for the now vacated DOL Fiduciary Rule will not just serve as good marketing but likely serve to comply with a whole new set of rules," Cisse writes.

In other word, big B-Ds and fund firms have already spent untold amounts of money adapting to a fiduciary reg world, and the SEC's proposal package may be ensuring that that money wasn't totally wasted. Of course, bigger firms are better able than their smaller brethren to absorb those costs. 

Edited by: Neil Anderson, Managing Editor


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