DOL Pressing Forward on Fiduciary

The senators wrote that while they believe the SEC is moving forward in crafting a fiduciary rule that adheres to the congressional mandate set out in Section 913 of the Dodd-Frank Act, the DOL, in its efforts to redefine fiduciary under ERISA, could work "at cross purposes" to the SEC's rule.

At a minimum, the senators say in their letter, DOL should not issue "final" fiduciary regulations until the "SEC has completed its work" on its fiduciary rule and that "any regulation the DOL ultimately may propose should be carefully crafted so that it does not upend the SEC's work."

The senators told OMB that they "believe that Congress clearly intended that a single [fiduciary] standard should apply to retail accounts, including retirement accounts, based on specific guidelines enumerated in Section 913."

While acknowledging that they don't know what the DOL's fiduciary reproposal will say, the senators cite DOL's 2010 proposal that they say could have caused "all broker-dealers that service individual retirement accounts to be ERISA fiduciaries, which would have as a practical matter eliminated meaningful investment services for millions of IRA holders."

SEC Chairwoman Mary Jo White told members of the Senate Banking Committee in late July that the agency is focused on crafting a rule to put brokers under a fiduciary mandate, stating that "it's important for me to get to where we are going on that [rulemaking] as quickly as we can." But exactly when the agency will release that proposal remains uncertain.

White told members of the Senate Banking Committee that she has met with senior officials at DOL regarding collaboration on both agencies' fiduciary rules and has directed staff "to engage more actively" with DOL "to make sure they understand [the SEC's] perspective" on its fiduciary rulemaking.

But she noted the "full plate" of rules mandated by the Dodd-Frank and JOBS Acts that the agency must wade through and act on. Dodd-Frank gave the SEC the authority to write a fiduciary rule for brokers, but it didn't mandate that the agency do so.

Action on a fiduciary rulemaking could also be stymied by the arrival of the two new SEC commissioners—Kara Stein and Michael Piwowar—who were confirmed by the full Senate on Aug. 2.

While Stein, a Democrat who's replacing Elisse Walter, and Piwowar, a Republican who's replacing Troy Paredes, have voiced their support for White's recent announcement that she'd be changing the agency's "neither admit nor deny" settlement policy by seeking admissions of guilt in some of the more egregious cases, neither have expressed their view on establishing a uniform fiduciary duty rule for brokers and advisors.

Phyllis Borzi, assistant secretary of labor for EBSA, the primary architect of the revamped fiduciary proposal, has been adamant since crafting amendments to the definition of fiduciary under ERISA that while DOL would take the time to "get this right," and that DOL is indeed "coordinating very closely with the SEC to make sure we don't have outright conflicts," she was not going to wait for the SEC to publish its rule before releasing DOL's. As she told reporters at a recent conference: DOL "began working on its rule" to amend the definition under ERISA "before Dodd-Frank," adding that it was ludicrous for lawmakers to think that "one statute is more important than another."