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April 21, 2015

SEC Chair agrees that DOL has a separate and important mission to protect retirement savers with a fiduciary duty rule to put investors’ best interests first

On Tuesday, April 14th, the DOL proposed a rule  to require all retirement investment advisers to act in their clients’ best interest, not put their own economic interests first.  That long overdue reform will save Americans at least $17 billion in retirement funds every year. That means more than $17 billion every year would stay in American’s retirement accounts to grow rather than being moved into brokers’ bonuses.

Of course, the industry isn’t going to give up that $17 billion without a fight.  It has pursued a scorched earth strategy for years to prevent the rule from ever being proposed.  One of the industry’s key arguments has been that the DOL should be subordinated to the SEC, which, it argued, should pass a fiduciary duty rule before the DOL was allowed to act.  As we have detailed, this argument was entirely baseless and, in fact, inconsistent with the law requiring the DOL to protect retirement savers.

The day after DOL proposed its rule, Securities and Exchange Commission (SEC) Chair Mary Jo White acknowledged three key points that show how meritless Wall Street’s claim that the DOL should be forced to stop protecting families saving for retirement and wait years for the SEC to issue its own rule.

As SEC Chair White explained in testimony before the Financial Services and General Government Subcommittee of the House Appropriations Committee: (1) the DOL has a separate and important statutory mandate, (2) the SEC won’t be issuing its own fiduciary duty rule any time soon, and (3) the DOL consulted extensively with the SEC while drafting its rule.

In response to questions, Chair White explained that DOL is “a separate agency and so they have to decide under their own statutory mandate, which is an important one, over the ERISA retirement accounts, how and when to proceed.” As we know, DOL’s authority under ERISA is broader than the SEC’s, and its rule proposal covers financial products, such as insurance, which the SEC cannot.  As important, the DOL is focused on people typically with much less time to recover from market losses due to bad decisions or bad advice.  And, of course, retirement dollars are tax subsidized and, therefore, there is a very high public policy interest in who gets the money, the savers or the brokers.  Added to that is the retirement crisis facing the country:  too few people are saving and too many that do are saving too little to ensure a dignified lifestyle in retirement.  As commentators have noted, that potentially means a major bill for federal taxpayers in future years to fill the retirement savings gap to prevent widespread poverty among retired Americans.

As to the SEC’s own approach to deal with the conflicts of interest that are siphoning off Americans’ hard-earned securities markets investments, Chair White noted that the SEC is “at the beginning of the process” in deciding whether to issue its own fiduciary duty proposal.  As Chair White explained, while she personally believes the Commission should proceed with a rule, she is only one of five votes, and any comment she could make about a rule proposal must be conditioned on “if we are proceeding,” not when. “It’s not going to be quick,” she added.  In sharp contrast, the DOL has been working on its proposed rule for more than five years, including extensive, years-long outreach to all stakeholders.

Finally, Chair White repeated what she has said many times before: the SEC has “provided extensive technical assistance” to DOL in their rulemaking, especially the Commission’s “experience in broker-dealers.” And she explained that SEC “staff reported to me that the Department of Labor was responsive to receiving that assistance.”

All these remarks make clear and reconfirm that the DOL and SEC have different statutes and mandates and that the SEC is only at the very beginning of considering what, if anything, it might or might not do to better protect investors in the securities markets from brokers who put their interests above their clients’ best interest. Despite the industry’s arguments trying to kill the DOL’s proposal, the DOL should not be subordinated to the SEC any more than the SEC should be subordinated to the DOL. Forcing the DOL to wait for the SEC to act is just an industry tactic to delay critical new protections for America workers and retirees.

See Chair White’s testimony below:



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