By If you thought the Department of Labor’s (DOL) willingness to revisit the now infamous fiduciary rule is a sign that they might backing away from it altogether, you might want to rethink things. A recent announcement by the Securities and Exchange Commission (SEC) gives the appearance that the two government agencies might be working together on creating some sort of fiduciary standard for financial advisors.
In a public statement issued by SEC Chairperson Jay Clayton on June 1, the government made it clear that they are now looking for additional public comments relating to the “conduct for investment advisors and broker-dealers.”. The SEC is hoping to receive input from individual investors as well as anyone else who might benefit from fiduciary rules in the retail investment arena.
Chairperson Clayton recognized in his statement that the DOL fiduciary rule will have a significant impact on retail investment. As such, he believes his agency has jurisdiction as well. Speaking of that impact on the markets, Clayton wrote:
“It also may have broader effects on our capital markets. Many of these matters fall within the SEC’s mission of protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation.”
The Simple Made More Complex?
Across the country there are broker-dealers like Western International Securities just getting used to the idea of the DOL fiduciary rule. They generally agree with the rules’ main premise: guaranteeing that broker-dealers and their financial advisors always put the best interests of the client first. Yet there are concerns within the industry that having the DOL and SEC work together on a code of conduct for dealer-brokers and financial advisors will transform what is a simple rule into something incredibly complex.
Those concerned about the SEC and DOL possibly working together have plenty of history on their side. Just look at the U.S. tax code. What was once a very simple set of rules for paying in collecting income tax has grown into a code so large and complex that it stretches on for nearly 80,000 pages. When the income tax code was first established, it was a mere 400 pages in length.
The federal government has a bad habit of starting out with good intentions only to create a boondoggle out of new rules and regulations. As a result, what was intended to help consumers actually works against them more often than not. There is concern that the SEC and DOL working together on a code of conduct for the retail financial services industry will create a bigger problem than it solves.
Possible Conflict of Interest?
Even if the two government agencies working together does not create a convoluted and complex code of conduct, there is another concern to think about: a possible conflict of interest between the SEC and DOL. The SEC has already provided input used by the DOL to craft their rules. Why would they want to further the conversation if they have already given their input?
There is some speculation that the SEC wants to overrule the DOL and replace the existing fiduciary rule with one of their own. What a replacement rule would look like is anyone’s guess, but rumors indicate the SEC version would be significantly less restrictive.
About the only thing we know for sure is that dealer-brokers and financial advisors now find themselves in no man’s land. They want to be ready for the eventual implementation of the DOL rule but they also have to consider what the SEC might say about it down the road. It’s not a good situation.
