SEC Commissioner Michael Piwowar filed a public comment letter with the Department of Labor outlining his opposition to the fiduciary rule, a view which drew heavy criticism from Massachusetts’ securities regulator William Galvin.
In his letter, Piwowar outlined his “three most salient” concerns with the fiduciary rule, urging the Department of Labor to reconsider what he called “misguided rulemaking.”
Piwowar took issue with the DOL’s view that disclosure alone is ineffective in mitigating conflicted advice, which he says runs contrary to decades of SEC experience.
“Rather than dismiss out of hand the role of disclosure in policing conflicts of interest, I would strongly encourage the [DOL] to redouble its efforts to work with the [SEC] and its expert staff, who may bring to bear our decades of experience in enforcing multiple disclosure-based regimes,” said Piwowar.
In his second point, Piwowar said that the rule fails to distinguish between ‘selling’ activities and ‘advice’ activities, undermining the SEC’s longstanding approach of regulating of broker-dealers and investment advisers.
Piwowar argued that the SEC and FINRA require broker-dealers to deal fairly with their customers and disclose material conflicts of interest when making a recommendation.
“In the ongoing debate as to the creation of a uniform fiduciary duty for broker-dealers and investment advisers, it is sometimes asserted that a broker-dealer’s duties have less ‘bite’ than an investment adviser’s obligations,” said Piwowar. “This claim overlooks the robust regulatory scrutiny to which broker-dealers’ selling activities are subject by both the Commission and FINRA.”
Piwowar also warned that the effects of the rule will extend beyond retirement accounts, causing disruption to the broker-client relationship, as many provide financial services to clients for both their ERISA and IRA retirement portfolios and their non-retirement securities accounts.
Galvin, an outspoken fiduciary rule supporter, called Piwowar’s assertions “erroneous and dangerous,” and accused Piwowar of “turning a blind eye to the real abuses of retirement account rollovers.”
“Retirees have been fodder for unscrupulous brokers for years upon leaving their place of employment and rolling-over their retirement assets, said Galvin.” “I am therefore dismayed that a sitting SEC commissioner would so forcefully join with industry to attack the rule. Business groups looking to capitalize on Piwowar’s comments are already using them to their advantage.”
Eugene Scalia, attorney for the Chamber of Commerce and other groups suing the DOL, filed Piwowar’s letter with the fifth circuit court of appeals shortly after it was made public.
The fiduciary rule, which is currently under review as directed by the President, attempts to reduce conflicts of interest in retirement investment advice and redefines who is considered an investment advice fiduciary under the Employee Retirement Income Security Act of 1974.
The rule began implementation on June 9th, with certain provisions delayed until January 1, 2018.