Will new pressures on Dodd-Frank influence the fiduciary standard?

Republicans on the Senate Banking Committee have asked watchdogs at the Securities and Exchange Commission, the Commodity Futures Trading Commission and other agencies to determine whether they are doing enough to assess how Dodd Frank regulations will affect the economy. In a May 4 letter that was released today, the lawmakers asked the inspectors general at five financial regulators to review the economic analyses being performed on rules emanating from the massive financial reform measure. “Our request arises from our concern that regulatory agencies are conducting rulemakings to implement Dodd-Frank without adequately considering the costs and benefits of their rules and the effects those rules could have on the economy,” wrote Sen. Richard Shelby R-Ala., Banking Committee ranking member; Sen. Michael Crapo, R-Idaho; Sen. Bob Corker, R-Tenn.; Sen. Jim DeMint, R-S.C.; Sen. David Vitter, R-La.; Sen. Mike Johanns, R-Neb.; Sen. Patrick Toomey, R-Pa.; Sen. Mark Kirk, R-Ill.; Sen. Jerry Moran, R-Kan.; and Sen. Roger Whicker, R-Miss. The letter cites an SEC rule pertaining to the SEC registration of investors in private funds. It focuses on proposed rules and does not mention the SEC's January investment advice study. But the Senate Banking Republicans highlighted that report in a February letter to the SEC questioning whether its recommendation for a universal fiduciary duty for retail investment advice was supported by rigorous economic analysis. Under the Dodd Frank law, the SEC could issue a fiduciary-duty rule after conducting the study. But the two Republican commissioners — Kathleen Casey and Troy Paredes — issued a dissent to the report, saying that it lacks the economic underpinnings to support its conclusion. Republicans on the House Financial Services Committee, in a March 17 letter to the SEC, asked the agency not to promulgate a fiduciary regulation until it did more work on its potential economic impact. In an appearance Friday at an Investment Company Institute meeting in Washington, SEC Chairman Mary Schapiro said the agency will turn its attention back to the fiduciary rule sometime after July 21, the one-year anniversary of Dodd Frank that marks the deadline for most of its 243 rules. She also indicated that the agency will address the economic-analysis concerns. “We will put together a rulemaking team and explore the possibility of rulemaking pursuant to that study,” Ms. Schapiro said. “In the meantime, I've asked our economist to try to gather as much economic data as possible to help inform whatever rule we propose.” As the SEC proceeds on fiduciary duty, it must balance the desire of advocates, who want broker-dealers to meet the investment adviser standard, with the worries of fiduciary opponents, who argue that a universal standard could raise regulatory costs for brokers and undermine their business model. Ms. Schapiro said that the SEC will strive for a fiduciary standard “at least as strong as that on the investment adviser side of the business without unnecessarily limiting the choice investors have now on how to pay for or engage with a broker.” When a fiduciary rule is issued, Republicans could ask for more economic analysis. They have qualms about what they characterize as the deleterious impact of burdensome Dodd Frank regulations. Democrats counter that Dodd Frank strengthens market protections and will prevent another financial crisis.