SEC chief rips into fiduciary rule

WASHINGTON ― The acting SEC chair isn't mincing words on the Department of Labor's fiduciary rule.

"I have a very nuanced view of the DoL fiduciary duty rule: I think it is a terrible, horrible, no-good, very bad rule. For me that rule was never ever about investor protection," Chairman Michael Piwowar says. "To me, that rule, it was about one thing and it was about enabling trial lawyers to increase profits."

His comments come as the fate of the Labor Department regulation is uncertain; the department has moved to delay implemention while it reviews the rule.

Piwowar says now is the time to rethink the entire debate around a fiduciary standard because of favorable circumstances, including the freeze he put on writing new Dodd-Frank rules at the commission and the administration's push to slow or block the Department of Labor's fiduciary rule.

"That now opens us up to have a lot of staff-driven ideas come up through the commission, maybe things that haven't gotten on the agenda for the last six-and-a-half years because they've been sort of crowded out by Dodd-Frank rulemaking, but yet are things we should be doing or should be thinking about," Piwowar said in remarks at the Investment Adviser Association's annual regulatory and compliance conference.

For the better part of a decade, the debate over a uniform fiduciary standard has been framed by the provision in the Dodd-Frank Act that authorized (but did not require) the SEC to harmonize the rules governing different types of financial professionals who serve retail investors. In the context of the highly politicized and polarizing Wall Street reform law, participants in the fiduciary debate have tended to retreat to their "camps," Piwowar says, and the uneven standards of care remain unchanged.

"What I'd like to do is take the opportunity to step back from that and have a more fulsome discussion," he says.

Waldo Swiegers/Bloomberg

Piwowar suggests using a 2008 RAND study that the SEC commissioned as a starting point to reorient the fiduciary discussion. That study found that while investors are generally pleased with the investment advice they receive, there is widespread confusion about the different standards of care that govern the brokerage and advisory sectors.

In part, that confusion arises from the myriad titles financial professionals confer upon themselves, with many strains of "advisers" offering their services while operating under different regulatory environments.

"The idea that if someone calls themselves a financial adviser ― that means absolutely nothing, right?" Piwowar says. "Whether they spell it 'adviser' with an 'E' or 'advisor' with an 'O,' it means absolutely nothing, but a registered investment adviser has a very specific meaning, and therein creates a lot of the confusion."

He says that a renewed consideration of the fiduciary standard could "start a conversation with people about, 'Gee, if you call yourself an adviser or an advisor, then you have to hold yourself out to the suitability requirement of the Investment Adviser Act and case law that's come before that.'"

Piwowar urged the advisers and compliance professionals attending the IAA's conference to engage with SEC staffers to advance the fiduciary discussion and help to surface other proposals that could improve the regulatory environment, such as reforms to the commission's advertising or custody rules.

Piwowar acknowledges that there will be little movement on major rulemaking initiatives like a fiduciary standard while he is the acting chair, but he hopes to at least to begin developing the groundwork for some fresh proposals ahead of the confirmation of Jay Clayton, President Trump's nominee for chairman, and the filling of the two additional vacant commission seats.