Broker Fiduciary Rule Delayed by Cost-Benefit Analysis, SEC Says

The U.S. Securities and Exchange Commission’s effort to impose a fiduciary duty on brokerage firms has been delayed for additional cost-benefit analysis, according to a letter from Chairman Mary Schapiro.

SEC economists are still working on the initial proposal for the rule, trying to quantify its impact, Schapiro wrote in a Jan. 10 letter to Representative Scott Garrett, a New Jersey Republican. A federal court setback in July has caused the SEC to rethink the cost-benefit assessments in its rulemaking.

The rule, authorized by the 2010 Dodd-Frank Act, would impose a fiduciary standard on broker-dealers that is as rigorous as the one for investment advisers, requiring them to put retail clients’ interests before their own. Currently, brokers are required only to provide advice “suitable” to customers at the moment of the sale.

The SEC released a study a year ago this month recommending the change, citing customer confusion over the difference between a broker and an investment adviser.

Retail customers “may not necessarily have the sophistication, information, or access needed to represent themselves effectively in today's market and to pursue their financial goals,’’ the study said. The SEC’s two Republican commissioners dissented from the report.

The agency originally planned to issue a proposed rule in 2011. Schapiro said in a December interview that the rule, which has no deadline in Dodd-Frank, would likely be completed sometime this year instead. On Dec. 30, it was removed from the rulemaking calendar posted on the agency’s website.

Court Ruling

In July, an unrelated SEC rule was rejected by a federal court, citing an agency failure to fully study the rule’s cost to companies. Since then, the agency has been ‘‘redoubling” efforts to study cost-benefit effects of its rules, Meredith Cross, chief of the SEC’s Division of Corporation Finance, said in November.

House Republicans have voiced concern about the rule, pressing the SEC to conduct a cost-benefit analysis before any proposals are released for comment.

Schapiro’s letter was in response to a December letter from Garrett, chairman of the House Financial Services subcommittee that oversees the agency, requesting data on the progress the agency has made in analyzing the costs and benefits of a proposal.

Garrett, in his Dec. 21 letter, said that a hearing held by his subcommittee on the issue in September produced a “consensus view that there is currently no evidentiary basis for proposing new standard-of-conduct regulations.”

To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Jesse Hamilton in Washington at jhamilton33@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net

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