By Jane Meacham, Contributing Editor

The Securities and Exchange Commission (SEC) on June 1 got into the act of examining standards of conduct for investment advisers after long being overshadowed in the area of fiduciary oversight by the U.S. Department of Labor (DOL).

The call for public comments from newly appointed SEC Chairman Jay Clayton on protection of retail investors—for many, primarily related to their retirement plan assets—quickly followed the new Labor Secretary’s decision in late May to let the Obama-era DOL final fiduciary rule become effective through phased implementation on June 9. The rule remains under review by the DOL at the direction of President Trump.

DOL Secretary Alexander Acosta said in a May 22 Wall Street Journal op-ed that the SEC should be “a full participant” in the review of the DOL fiduciary rule now underway because of its “critical” financial markets regulatory expertise. In past years, the DOL and SEC have been seen as being at odds on developing such regulation, with the DOL taking the lead in the Obama administration (See, New DOL Fiduciary Rule Takes Effect June 9; Acosta Says SEC Should Be Involved).

Could Add Uncertainty

The SEC request for comment on the standards of conduct applicable to investment advisers and broker-dealers when they provide investment advice to retail investors is seen as many in the retirement plans community as potentially adding more uncertainty to an already-confused regulatory issue.  

Clayton wrote that the call was prompted by “[s]ignificant developments in the marketplace since the Commission last solicited information from the public in 2013 ... including the issuance and pending applicability of the Department of Labor’s Fiduciary Rule,” and outlined 17 categories for commenters to address.

“Given the significance of these issues—in particular, for retail investors looking to save for the things that matter most to them, including homeownership, education, and retirement—I look forward to robust, substantive input [from commenters] that will advance and inform the SEC’s assessment of possible future actions.”

Categories of Requested Comments

A client memo from the Investment Management division of law firm Drinker Biddle dated June 6 said some of the most important categories in the SEC comment request included:

• Whether the SEC should move ahead with a disclosure- or standards of conduct-based approach;
• Whether potential conflicts of interest in the provision of investment advice to retail investors have been appropriately identified and addressed;
• Whether there are benefits or costs to having different standards of conduct for accounts subject to the DOL fiduciary rule and those that are not;

• How any SEC action should be implemented and how it should comport with the fiduciary rule; and
• How to define “retail investor” and “investment advice.”

An SEC web form and e-mail box are available for members of the public to submit their comments and make their views publicly known.

Clayton also said in the request for comments, “I believe clarity and consistency—and, in areas overseen by more than one regulatory body, coordination—are key elements of effective oversight and regulation. We should have these elements in mind as we strive to best serve the interests of our nation's retail investors in this important area.”

But the Drinker Biddle memo told clients, “Fund boards of directors, service providers, and intermediaries should not expect action in the near future by the SEC with respect to a uniform standard of conduct, as this is not the first time the SEC has called for comments on this issue.” It said the SEC opened one public comment period in 2013, then stated its intention to issue a notice of proposed rulemaking by April 2017. No action was taken after the SEC’s last call for public comment and no notice was issued, the firm said.