Unlike ebony and ivory, the competing laws governing each the SEC and the DOL cannot live in perfect harmony – at least as far as the fiduciary standard is concerned. So say many experienced financial industry pundits and, especially, fi360.
The organization best known for advocating all things fiduciary recently sent a letter to 127 political insiders pointing out the practical problems of trying to fit the DOL’s square Fiduciary Rule into the round hole of the SEC’s Fiduciary Standard (see “Why the Fiduciary Standard Can’t Live in Harmony").
The letter went to a group of Democrat legislators asking the DOL to stop moving forward on its own regarding its new Fiduciary Rule and, instead, “harmonize” their efforts with those of the SEC regarding the latter agency’s effort to define a fiduciary standard.
In terms of fairness and balance, the Republicans beat the Democrats to this DOL punching bag. No matter who took the first shot, some believe this delaying tactic was meant to scuttle the effort of the DOL. Count me among them.
The problem actually pre-dates the DOL’s proposed Fiduciary Rule by about a dozen years. As I’ve commented on before, when the SEC began accepting dual registration in earnest just prior to the new millennium, they mixed the oil of the brokerage industry with the water of the investment adviser industry.
Apparently, the Commission had failed to discern the lessons of “serving two masters” during their Sunday School classes. Worse, for the casual customers who can’t tell the difference, the retail investor’s eyes only see only “liquid,” ignoring the properties that distinguish oil from water.
Which brings us back to the DOL’s Fiduciary Rule. It would seem only detrimental to try to mix the deliberate and thoughtful process of the DOL with the scatterbrained and overtly political method practiced by the SEC. The fact that the DOL had almost no support from either party only adds to the credibility of its labors (pun intended).
The SEC, on the other hand, immediately fell victim to the partisan schism of Dodd-Frank. While the SEC overplayed its hand in an attempt to extort more taxpayer money from Congress, the DOL went forward with a methodical approach that ignored politics and focused on the needs of the beneficiaries it serves. The DOL stood up to biased industry reporting. The SEC embraced it.
The folks at fi360, being the kind people they are, charitably laid out a justification for the divergent paths by the two agencies by citing the different laws governing each of them.
I don’t have to be as charitable.
There’s an old John Wayne movie ("The Fighting Seabees") where the theme is loyalty. Loyalty, you know, as in “a fiduciary has a duty of loyalty to the client.” Anyways, in this movie, John Wayne’s character (“Wedge Donovan” – a classic name) tells Susan Hayward’s amorous character, “Honey, this is strictly from Brooklyn, but why don’t ya dance with the one that brung ya!” He remained loyal to his job – and to a man he didn’t like but who had first wooed Susan Hayward.
But the phrase has another meaning. It can also mean, “you made your bed, now sleep in it.” As in, John Wayne saying to his rival for Susan Hayward’s affections, “you brought her, you bring her home.”
The SEC must sleep in the bed it has made. There’s no purpose in asking the DOL to share those same quarters under the guise of “harmonization.” Doing so only causes an unnecessary delay. As I’m sure John Wayne must have said at some point, “The show must go on!”
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