In early 2011, the SEC recommended adoption of a "uniform" fiduciary standard covering brokers and advisers. In short, anyone "providing personalized investment advice" would have to "act in the best interest of the customer without regard to the financial or other interest of the broker, dealer or investment adviser providing the advice."
That might seems like a reasonable measure to most people, but then most people aren't financial-services interests with a stake in the status quo. Parts of the industry, especially insurers, resisted fiercely, arguing that tighter rules would raise compliance costs and introduce litigation threats, pricing many investors out of the advice market. Others note, fairly, that even a universal fiduciary standard would not provide infallible protection from harmful advice (Madoff was a RIA).
Whatever the merits of these arguments, the push for a uniform standard has hit a brick wall at the SEC. Though Obama-appointed SEC Chairwoman Mary Schapiro took office vowing to make the fiduciary standard a priority, the commission's two Republican members dissented from the 2011 recommendations, arguing that the issue needed more analysis.
Republicans on the House Financial Services Committee have pressured the SEC to halt its fiduciary-standard efforts, saying there's no clear evidence that a new rule is required. They're demanding a cost-benefits analysis, which the SEC is considering authorizing.
But would a Romney victory preempt the effort altogether? As president, he would be expected to appoint a new SEC chair (subject to Senate approval). If candidate Romney has a position on the fiduciary issue, it wasn't clear to campaign spokesperson Amanda Henneberg as of Friday afternoon. What is clear is that Romney has vowed to repeal Dodd-Frank, which some say puts him at odds with the goal of transparency that's at the heart of the fiduciary movement.
If Romney wins, "I think it's off the table for the next four years. It's not going anyplace," says Ron Rhoades, a SUNY professor and leading proponent of a universal fiduciary standard. "Romney is so pro-Wall Street I cannot fathom that he would not appoint someone to the SEC chair who will also be pro-Wall Street—and Wall Street is dead set against the fiduciary standard."
Rhoades expects a Romney administration would "chip away" at Dodd-Frank, noting that, unless the Senate's composition shifts dramatically, "it doesn't take much to get three votes to undo some of Dodd-Frank." He's not sure Congress would repeal the law's section 913, which authorized the SEC rule-making. "They may not feel the need to do that if they control the SEC, but it's certainly something that they would like to see repealed and they would try to fit into some type of bipartisan bill."
Not every proponent of a universal fiduciary standard thinks a GOP victory would be the end of the road. While conceding that a Romney victory could mean a "material difference" in the composition of the SEC, Knut Rostad, president of the Institute for the Fiduciary Standard, says public disgust at Wall Street just might trump conventional Wall Street-GOP relations even if Romney wins.
What we could see, he suggests, is a Nixon-goes-to-China moment. Just as it took the street cred of a fervent anti-communist to broach relations with Red China, so it might be easier for a former private-equity guy to do something Wall Street doesn't quite like.
Surveys showing popular mistrust of Wall Street "clearly suggest that this might be a place to step out of the conservative Republican mold," says Rostad. "I think we're in new territory in terms of the level and the intensity and the depth of investor disgust with Wall Street. I think that creates an opportunity."