In an increasingly frantic effort to derail new protections for retirement savers, SIFMA, the self-described "voice of the U.S. securities industry," has purchased yet another study that purports to show why a pending Department of Labor (DOL) proposal to require all financial advisors to put their customers first is unnecessary and inappropriate.
With rose-colored glasses firmly in place, the report authors survey the current regulatory scene and conclude that it is pretty much perfect just the way it is. They chide the White House Council of Economic Advisers (CEA), which found that retirement savers are losing an estimated $17 billion a year as a result of conflicted advice, for failing to fully appreciate the "comprehensive" protections investors currently receive.
Of course, the gaping hole in this argument is that the $17 billion in losses occurs under the existing regulatory system -- a regulatory system that permits the existence of corrosive conflicts of interest in the business practices of broker-dealer firms and fails to hold the "financial advisors" who work for those firms accountable when they make recommendations that put their own interests ahead of their customers' financial well-being.
The subtext of the Morgan Lewis report, and of the industry's latest messaging, is that DOL should "stand down" and defer instead to the expert regulators at the Securities and Exchange Commission (SEC). As Financial Services Institute General Counsel David Bellaire reportedly said, "It is clear that the SEC, with an 80-year history of regulating the securities markets, has a depth of knowledge and expertise that is unmatched."
As we have noted before, it is unclear how that securities law expertise makes the SEC more qualified than DOL to write rules under the Employee Retirement Income Security Act (ERISA). The more important point that proponents of this argument fail to acknowledge, however, is that it is the "expert" regulators at the SEC who are largely responsible for creating the current regulatory mess that DOL's proposed rules are intended in part to address.
- It is the SEC that, during the late 1980s and early 1990s, allowed broker-dealers to rebrand themselves as financial advisors without subjecting them to the high standards appropriate to that role.
- It is the SEC that has done nothing to rein in the most egregious conflicts of interest in the broker-dealer business model, despite a clear mandate in the Dodd-Frank Act to study such conflicts and to limit or ban practices that are inconsistent with the public interest and the protection of investors.
- And it is the SEC that has still taken no concrete action to address the problem of inconsistent standards for investment advice more than four years after the agency staff issued a study calling for rulemaking to hold all financial advisors to a uniform fiduciary duty when they provide personalized investment advice to retail investors.
The fact that SEC Chair Mary Jo White now appears poised to set the rulemaking process in motion is good news for investors. In announcing her views on the need for SEC rulemaking, Chair White said all the right things about supporting a principles-based standard rooted in and no weaker than the existing standard under the Investment Advisers Act. But she also acknowledged the many complex issues still to be decided and made clear that the rule-writing process is in its earliest stages. And she emphasized that DOL has its own important role to play in addressing the problem.
So despite its 30 pages and its many citations to existing securities laws, the latest SIFMA-purchased white paper manages to say nothing relevant to the current debate. There is, as a favorite professor used to say, less here than meets the eye.