Like most financial industry officials, Charles Schwab Corp. president and chief executive Walter Bettinger II wants the Department of Labor and the Securities and Exchange Commission to coordinate their efforts on raising investment advice standards for brokers.
But he conceded at an industry conference on Wednesday afternoon that the DOL proposal that requires brokers to act in the best interest of their clients, or as a fiduciary, may become the framework for an SEC rule. He said that that's better than the SEC going in a completely different direction.
“If it does unfold that the SEC follows the DOL, at least you can say then that we have one set of rules,” Mr. Bettinger said at the opening of an Investment Company Institute conference. “Whether they're optimal or not, it's one set. That's less confusing to a consumer than having two completely different approaches.”
The financial industry has expressed reservations about the DOL, which
proposed its rule on April 14, getting ahead of the SEC, which has been mulling a rule for years and is
nowhere near a proposal.
Industry groups worry that there will be one standard for retirement accounts from the DOL and another one for other retail investment accounts.
DODD-FRANK PARAMETERS
They want the SEC to go first because if it writes a fiduciary-duty rule, it will likely do so within parameters set by the Dodd-Frank financial reform law that protects many brokerage practices, such as charging commissions and selling proprietary products. The DOL proposal, even though it includes a broad exemption for broker compensation approaches, is considered more restrictive.
In saying that having the DOL set the tone is better than the regulators going their separate ways, Mr. Bettinger acknowledged that he may be in the minority among other executives in the industry.
“Did I just pick the lesser of two evils?” Mr. Bettinger asked ICI president and chief executive Paul Schott Stevens, who conducted a Q&A with him at the event.
One concern that Mr. Bettinger expressed about the DOL proposal is that its focus on the behavior of financial advisers not undermine self-directed investing.
“Not everyone operates in an adviser relationship,” Mr. Bettinger said.
The comment period on the DOL proposal will end on July 6. Although most financial firms have been keeping their powder dry until they file a comment letter, there have been rumblings from industry groups that the current proposal is no better than the original 2010 proposal.
That measure was withdrawn by the DOL after fierce resistance by the industry, which argued that it would significantly increase regulatory and liability costs and force brokers to abandon investors with small retirement accounts. The DOL, with strong White House backing, says the re-proposed rule will protect middle-class investors from conflicted investment advice, as they build their retirement nest eggs.
Mr. Bettinger acknowledged that there are problems with 401(k) rollovers to individual retirement accounts, saying that when clients are put into inappropriate, costly products, “that gets under my skin.”
He said the industry has to be careful in its opposition not to be portrayed as trying to stall the DOL rule until it dies. He also said that the argument that small investors will be hurt can go too far, when critics say that they will have nowhere to turn for advice.
“I have a little bit of concern around smoke-screen efforts,” Mr. Bettinger said.
