House prohibits SEC action on fiduciary standard News added by Benefits Pro on July 18, 2014

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By Nick Thornton

In passing its budget bill for next year, the GOP-controlled House this week included an amendment prohibiting the Securities and Exchange Commission from establishing a fiduciary standard rule for broker-dealers.

The amendment was the latest setback in the push to establish a uniform fiduciary standard across the financial services industry, one of the more wildly contentious changes in ERISA in years. In late May, the Department of Labor moved its deadline for establishing new fiduciary standards to 2015.

The SEC declined to comment on Wednesday’s amendment.

The amendment was advanced by Rep. James Lankford, R-Oklahoma, and passed on a voice vote on the House floor.

In his address on the floor before the vote, Lankford said the prospect of the SEC establishing a new fiduciary standard for broker-dealers “is a study in unintended consequences.”

“This (proposed standard) will provide a disincentive to provide retirement vehicles for Americans on the lower and middle-end of the income scale,” said Lankford.

Section 913 of the Dodd-Frank Act grants the SEC authority to draft a new fiduciary standard rule. It’s unlikely the amendment – an echo of failed legislation passed by House Republicans last year – has much of a chance of becoming law, given the Democrats’ control over the Senate.

The leadership at the SEC has been split over the prospect of the extending the standard to broker-dealers.

In an interview earlier this year with ThinkAdvisor, SEC Commissioner Daniel Gallagher said a new fiduciary rule “is not fair right now.”

“If you talk to many of the consumer advocates and others, they will cite to you all of the transgressions of the brokers,” Gallagher said. “There are so many public displays of malfeasance in the brokerage industry because we resourced oversight of brokers so much more than advisors. Therefore, we know a lot more about brokers and their practices — we know when they are committing rule violations, and there are so many more broker-dealer rules to violate.”

SEC Chairwoman Mary Jo White, however, has been on the record supporting a single uniform standard to be enforced by both the SEC and the Department of Labor.

Addressing the Consumer Federation of America’s Consumer Assembly in March, she said, “Whenever you have substantially similar services regulated differently, I believe it is necessary to consider whether the regulatory distinction makes sense.”

Labor Assistant Secretary Phyllis Borzi, who heads the Employee Benefits Security Administration, has been pushing for a new fiduciary standard since 2010, asserting that advisors who work on a commission model have "conflicts of interest" that inherently hurt consumers.

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