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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Can The SEC And Department Of Labor Live With One Fiduciary Duty

Posted in Compliance and Supervision, Dodd-Frank, Financial Industry Trends

The Department of Labor’s head of the Employee Benefits Security Administration recently announced that the DOL is going to coordinate with the SEC on fiduciary policy, but that the DOL and SEC will maintain and pursue their own regulations.  This statement has garnered confusion and concern by many in the industry, as it should.

The primary concern with such a statement is that the SEC and DOL operate under different fiduciary duty standards.  The securities laws focus on disclosure, while the retirement law fiduciary duty that the DOL enforces prohibits conflicts of interest.  As such, how can the DOL and SEC coordinate their respective fiduciary policies when they operated under different standards.  In response to such concern, the DOL stated that there would not be one standard, but that the two will be compatible.

The DOL like the SEC has been struggling with its own fiduciary duty standard, resulting in it withdrawing a proposed fiduciary duty rule in September 2011.  Dodd-Frank vested the SEC with the authority to develop a uniform fiduciary duty standard over anyone who provides retail investment advice.  The SEC has yet to develop such a standard and has tabled doing so through the balance of 2012.

The overall uncertainty created by the respective inability of the SEC and DOL to develop a fiduciary duty standard leaves many in the retirement planning arena in the dark, leading some opponents to question whether this is even necessary.  The bad apples ultimately float to the top and can be removed from the barrel through enforcement mechanisms.  While the debate rages, confusion reigns.  Either clear rules should be adopted or the process abandoned.  The state of unrest does not help anyone.