21 January 2019

SEC Chairman: Fiduciary Rule A Boon For Trial Lawyers

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The acting head of the Securities and Exchange Commission blasted a regulation opposed by stockbrokers and the Trump administration, saying the rule was written to “increase profits” for trial lawyers.

Michael Piwowar Thursday added his voice to a strident debate over the future of the retirement-savings regulation known as the “fiduciary” rule. The Labor Department plans to delay the rule by 60 days, setting the stage for its repeal or considerable revision.

Mr. Piwowar said the rule was “highly political” and was “never about investor protection.”

The regulation, widely opposed by Republicans in Congress, would hold brokers to a higher standard when they advise investors saving for retirement. Under the rule, investors using individual retirement accounts would have a new right to sue brokers who don’t adhere to the best-interest standard. Wall Street groups have said the SEC should have written the rule because the agency oversees all of Wall Street, not only retirement accounts such as IRAs and 401Ks.

“I have a very nuanced view of the DOL fiduciary-duty rule,” Mr. Piwowar said at a conference sponsored by the Investment Adviser Association. “I think it is a terrible, horrible, no good, very bad rule.”

Mr. Piwowar’s comments show how unlikely the SEC is to propose stricter standards for brokers even if the Labor Department’s effort is rescinded.

If the SEC were to draft its own version of the rule, the commission should focus its efforts much more narrowly, perhaps by restricting the practice of brokers holding themselves out as “financial advisers,” Mr. Piwowar said. The title may confuse investors who don’t understand that the person might be a broker, not an investment adviser, who is held to a higher standard under the law, he said.

“If someone calls themselves a financial adviser, that means absolutely nothing,” he said.

Under federal law, investment advisers must put their clients’ interest ahead of their own financial gain. Brokers are held to a lower standard of care, known as suitability, that says investment recommendations must fit a client’s goals or risk tolerance.

Mr. Piwowar also said he wasn’t “enamored with” a proposal—floated by former Chairman Mary Jo White—to outsource some exams of investment advisers.

Lacking enough manpower, the SEC only examines about 11% of all advisers annually for compliance with federal securities laws. The SEC has never examined thousands of money managers it oversees, despite adding scores of examiners and doubling its spending over the last 13 years.

Using outside examiners, such as audit firms, would require the SEC to beef up its own oversight of those third parties, he said.

“It’s not a free lunch,” he said.

Click here for the original article from Wall Street Journal.

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