This week’s nomination of Wall Street attorney Jay Clayton to head the Securities and Exchange Commission prompted speculation that the agency charged with policing financial markets will pivot from a rulemaking and enforcement posture to one focused on facilitating more access to capital markets.

If accurate, the fate of the long-awaited SEC version of a rule creating a uniform fiduciary standard for the investment advisory industry may be in jeopardy.

Last Spring, outgoing SEC Chair Mary Jo White said a proposal for the Personalized Investment Advice Standard of Conduct rule would be released in April of 2017, about the time the Labor Department’s fiduciary rule is scheduled for implementation.

As Chair, Clayton’s responsibilities will include setting the Commission’s agenda.

“He’s not a high-profile name like we’ve seen in previous administrations,” said Jim Allen, head of the Capital Markets Policy Group in the Americas for the CFA Institute, which charters certified financial analysts.

“It’s good to have someone that is familiar with securities law on the transactional side, and we think his support of capital formation will be a positive,” said Allen.

“Even though his background is not on enforcement of regulations, we still hope he will be a strong advocate for investor interests,” he added.

If confirmed by the Senate, Clayton, a partner in the New York-based law firm Sullivan & Cromwell, will bring an extensive background guiding major public offering and acquisition deals. He’s overseen tens of billions in deals bringing companies public, including a $25 billion IPO by Chinese online retailer Alibaba.

The Trump transition team said Clayton will balance the incoming administration’s priority to shape regulations that promote job growth with strong oversight of Wall Street.

“Robust accountability will be a hallmark of his tenure atop the SEC, and the financial security of the American people will be his top priority,” according to a statement from the transition team.

Critics of the Trump administration on Capitol Hill were quick to dismiss the sincerity of that pledge.

Sen. Elizabeth Warren, D-MA, who has called on President Obama to fire outgoing SEC Chair Mary Jo White, said the nomination of Clayton was “great news if you happen to run a big bank or manage a hedge fund.”

Sen. Sherrod Brown, D-OH, the ranking member of the Banking, Housing and Urban Affairs Committee, said the nomination of Clayton runs contrary to President-elect Trump’s repeated campaign promises to reign in Wall Street.

“I look forward to hearing how Mr. Clayton will protect retirees and savers from being exploited,” said Brown in a statement.

Even if a new fiduciary standard is deprioritized under Clayton, CFA’s Allen doesn’t think that has to spell the end of investor protections.

In effect, the SEC already has a fiduciary rule in the Investment Advisors Act of 1940.

“The SEC doesn’t have to write a new rule if it’s willing to enforce the rules already on the books,” said Allen.

“Stop allowing brokers to call themselves investment advisors when they are not---it implies a higher duty of care and creates confusion among investors,” said Allen.

The CFAs that the Institute charters are beholden to the standards of prudence, loyalty and care that are the hallmarks of a fiduciary standard—the Institute eschewed the world fiduciary from its charter as the Institute started to play a more global role.

Allen says the Institute backs the Labor Department’s rule, albeit with some reservation. It had hoped the SEC would take the lead on the writing a fiduciary rule.

“Labor’s rule is going to be difficult to implement, but in the final analysis, we think it moves industry in the right direction,” said Allen.

What is most disappointing about Labor’s rule, says Allen, is that it only extends to investment recommendations on retirement accounts.

That creates the continued possibility for investor confusion when brokers advise on investments outside of IRAs.

Allen is comfortable with the existence of brokers who sell investments. But the blurring of the line between sales person and fiduciary over the years has opened the door to more conflicted advice, and ultimately investors’ confusion.

“We think any personalized advice should be bound by a fiduciary duty. If you don’t want to be bound by a fiduciary standard, that’s fine, but call yourself a sales person, not an investment advisor.”

If Labor’s rule survives, some brokers may be incentivized to sell investments outside of retirement accounts.

Allen thinks most of the potential for confusion over the different standards for investments in and outside of retirement accounts will be inadvertent, and not willfully manipulated by brokers.

But confusion will exist nonetheless.

“Investor trust is central to productive capital markets,” said Allen. “If you don’t have trust markets shut down.”

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Next SEC Chair won&rsquo;t need a new rule to enforce fiduciary standard

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