Potential SEC Nominee Takes Dim View of ‘Flawed’ Fiduciary Rule

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By Andrew Ramonas

SEC Chairman Jay Clayton may get a new ally as the agency considers action related to a controversial Obama-era regulation intended to fight financial industry conflicts of interest.

President Donald Trump is expected to tap Republican think-tank scholar Hester Peirce for a seat on the Securities and Exchange Commission after her nomination stalled in the previous Congress, Bloomberg News reported June 16. She is a fierce critic of the fiduciary rule adopted in 2016 by the Labor Department, which Clayton has asked the public to assess in advance of potential SEC action.

Peirce, a research fellow at George Mason University’s Mercatus Center, told the Labor Department in an April letter the rule is “flawed” and “undermines investor protection,” echoing objections made by financial firms.

The DOL regulation requires retirement advisers to place customer interests ahead of their own. The SEC, which regulates providers of financial advice, consulted with the department on the rule, but hasn’t initiated rulemaking, as authorized by the 2010 Dodd-Frank Act.

The statute permits, but doesn’t require, the SEC to impose a “best interest” standard on “all brokers, dealers, and investment advisers, when providing personalized investment advice about securities to retail customers.” A little over a year ago, then-SEC Chairman Mary Jo White said the staff had provided the commissioners with an outline of a fiduciary rule that would apply to broker-dealers as well as investment advisers, but a rule was never proposed.

The Labor Department should work with the SEC on the regulation, Peirce wrote in the April letter with fellow scholar, Mark Warshawsky. In their view, the commission has a “broader understanding of and longer experience with regulating financial products and services.”

“The rule itself will not necessarily have a positive impact on the retirement savings of Americans and is hugely disruptive to established financial and retirement industries,” the letter said.

Most of the DOL rule went into effect as scheduled June 9. The regulation, however, is getting another look by the department, which is interested in coordinating with the SEC on the matter, according to Clayton.

Clayton, an independent appointed by Trump, made reviewing the fiduciary rule his first major policy initiative after becoming chairman May 4. He said in a June 1 statement he looks “forward to robust, substantive input that will advance and inform the SEC’s assessment of possible future actions.”


Peirce, a lawyer, also may prove a valuable partner to Clayton in easing regulation under Dodd-Frank, a Trump administration priority.

Her writings this year include “ Eliminating Dodd-Frank’s Overrated Escape Hatch” and “ Failure to Repeal Dodd-Frank Is What Should Have Us Scared,” in which she cautioned against “replacing a financial regulatory system that does not work with the pre-crisis system that did not work.” She also co-edited “ Reframing Financial Regulation: Enhancing Stability and Protecting Consumers,” a 2016 book that said the U.S. regulatory system currently “does not improve market functioning.” Earlier this year, she pointed to regulation, including Dodd-Frank rules, as “likely an important factor” in the declining number of broker-dealers and futures commission merchants.

Peirce in April testified before the House Financial Services Committee in support of Rep. Jeb Hensarling’s (R-Texas) Financial Choice Act (H.R. 10), which seeks to overhaul Dodd-Frank. She praised the bill’s provisions to eliminate the Volcker Rule prohibition on banks’ proprietary trading and the enhanced regulation of “systemically important financial market utilities.”

“Americans are weary of financial regulation after nearly a decade of intense work in the wake of the 2008 financial crisis,” Peirce said in her written testimony. “Nevertheless, the financial system continues to need work.”

Next Steps

The Trump administration has given no public indication of when it might announce a nomination. Republican nominees for commissioner vacancies traditionally are paired with Democrats, when there are openings for both parties.

Peirce initially was named by President Barack Obama, along with Democrat-backed law professor Lisa Fairfax, whose nomination also didn’t make it out of the Senate. Columbia University law professor Robert Jackson and Sen. Elizabeth Warren (D-Mass.) aide Bharat Ramamurti are candidates for the Democratic seat, according to Bloomberg News.

The five-member SEC currently has three commissioners—Clayton, Republican Michael Piwowar, and Democrat Kara Stein, whose term expired June 5. She can serve another 18 months or until she is replaced, whichever comes first.

Paul Atkins, a former Republican commissioner whom Peirce advised at the SEC, told Bloomberg BNA in a recent interview she would make a “fantastic” nominee.

“She’s very serious, scholarly, but also very approachable,” said Atkins, chief executive of Patomak Global Partners LLC. He led Trump’s transition team focused on financial services regulation.

Peirce declined to comment. A White House representative didn’t respond to a request for comment.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

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