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Five-Member SEC Complicates Fiduciary Rule

Five-Member SEC Complicates Fiduciary Rule

Finally, the SEC is whole again. The agency reached a full complement of five commissioners with this month’s swearing in of Robert Jackson (D), who comes to the post from the New York University School of Law, and Hester Peirce (R), most recently a senior research fellow at George Mason University’s Mercatus Center. This is the first time that the SEC has operated with five commissioners since the resignation of Louis Aguilar in December 2015.

Having a full house should benefit SEC Chair Jay Clayton in his quest to pursue his agenda. Since the Trump administration began, the SEC has operated with a bare quorum of three commissioners. While that allowed the SEC to take certain important actions—in September, for instance, it adopted guidance on the pay-ratio rule—it also gave individual commissioners effective veto power over rulemakings. If a single member stayed away from a meeting, the SEC was left without a quorum. That is no longer the case.

While it provides welcome bodies, the seating of the fourth and fifth commissions at the SEC does bring some complications.

Perhaps most notably, it could slow down the SEC’s widely anticipated movement to articulate a standard of care for investment advisors and broker-dealers. The Department of Labor, which had its own fiduciary standard for brokers in the works, has pressed pause on its effort. That leaves the door open for the SEC to lead the way, and a Wall Street Journal report indicates that SEC is hoping to unveil its standard in the second quarter of 2018. In the same breath, the WSJ allowed that the swearing in of Jackson and Peirce could hold things up, in the likely event that the rookie commissioners “want time to study a proposal that will generate scrutiny on Capitol Hill.”

The other question raised by the seating of commissioners Jackson and Peirce is just how long the SEC will remain at full strength. The term of Commissioner Michael Piwowar (R) ends in June 2018. Commissioner Kara Stein’s (D) term, meanwhile, already expired in June of 2017. It’s unknown how long either will remain, although we do know that Stein can serve for a maximum of 18 months from the end of her term or until she is replaced.

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