As the chair of the Securities and Exchange Commission (SEC), Mary Jo White, who earned a reputation as a tough New York prosecutor, will likely not shy from creating a fiduciary standard that has her stamp on it, and from creating a climate where SEC enforcement will vigorously go after industry malfeasance, including suitability of variable annuity products.
White’s current practice at Debevoise & Plimpton concentrates on internal investigations and defense of companies and individuals accused by the government of involvement in white collar corporate crime or SEC and civil securities law violations, and on other major business litigation disputes and crises.
“The nomination of Ms. White to fill the seat of SEC Chairman, which became vacant with Ms. Schapiro’s resignation, will bring the Commission up to full strength and should help the SEC deal with the many issues before it, including standard of care,” stated Gary A. Sanders, vice president – securities and state government relations for the National Association of Insurance and Financial Advisors (NAIFA).
Sanders was referring to NAIFA’s concern that the potential additional costs and increased potential for liability of applying a “one size fits all” fiduciary standard of care to the broker-dealer business model could result in middle- and lower-market investors having less access to the account services and investment advice that are currently being delivered by registered representatives of broker-dealers.
“Ms. White’s background as a prosecutor and in private practice will make her well positioned to implement and enforce the nation’s securities laws in a reasonable and well balanced way,” Sanders added. “We look forward to introducing her to NAIFA.”
Financial Services Institute (FSI) President and CEO Dale Brown also weighed in on the fiduciary standard development.
“FSI congratulates Mary Jo White on her nomination as chair of the Securities and Exchange Commission. An experienced and effective SEC chair, collaborating with investors and the industry, is critical to fulfilling the SEC’s mission of investor protection and maintaining fair, orderly and efficient capital markets. We look forward to working with her to preserve money market mutual funds and create an effective and efficient fiduciary standard,” Brown said.
The SEC has stated it plans to “move forward” next year with a uniform fiduciary standard rule for advisors and brokers when providing personalized investment advice as well as “continue to assess” ways to better harmonize advisor and BD rules when they are providing similar services, according to the agency’s just-released 2012 Financial Report, wrote Melanie Waddell in sister publication Investment Advisor in December.
The agency will forge ahead with a fiduciary rule in 2013 even with a new chairman at the helm, SEC Acting Commissioner Elisse Walter, who is filling in for Mary Schapiro, likely wouldn’t go along with putting brokers under the Investment Adviser Act fiduciary standard. However, Walter has been a strong proponent of harmonizing advisor and BD rules, Investment Advisor wrote.
Schapiro told AdvisorOne in late September that the agency was indeed moving forward with a rule proposal internally, and that she was “ready to go” on releasing a request for information to allow the public to help inform a “more detailed” cost-benefit analysis on the agency’s fiduciary rule.
White must take the baton, now. Some worry she is a bit of an unknown in undeveloped issues still before the SEC.
"Mary Jo White has a reputation for having been a tough and aggressive prosecutor, when that was her role, and for being a tough and aggressive defense attorney in her current role," said Barbara Roper, director of investor protection for the Consumer Federation of America. “As SEC chairman, her responsibility will be to the American public, and our hope is that she will bring those same qualities to her new role. The concern, of course, is that she's a blank slate on the many extremely important policy issues pending before the SEC. With two-thirds of the Dodd-Frank rules still pending and all of the JOBS Act rules still unwritten, we need an SEC chairman who is committed to financial reform and who recognizes that markets function best when investors are appropriately protected. Our hope is that she will be that person. She certainly has the basic qualifications to be an excellent SEC chair.”
White would also serve on the Dodd Frank-created Financial Stability Oversight Council (FSOC) to be chaired by the new Treasury Secretary Jacob Lew once he is confirmed.
According to Debevoise & Plimpton, where she is a partner and litigator, when White left her post as U.S. Attorney for the Southern District of New York in January 2002, she was acclaimed for her nearly nine years as the leader of what is widely recognized as the premier U.S. Attorney’s office in the nation.
White has experience supervising over 200 assistant U.S. attorneys in successfully prosecuting some of the most important national and international matters, including complex white collar and international terrorism cases. White rejoined Debevoise in 2002, and became chair of the firm's Litigation Department with more than 225 lawyers.
White has also served as a director of The Nasdaq Stock Exchange and is also a member of the Council on Foreign Relations.
Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, required a study on the effectiveness of the standards of care required of broker-dealers and investment advisors providing personalized investment advice about securities to retail customers, considering whether there are regulatory gaps, shortcomings or overlaps that should be addressed by rulemaking.
After discussing the regulatory framework applicable to broker-dealers and investment advisors, the study recommended that the SEC establish a uniform fiduciary standard for broker-dealers and investment advisors when providing personalized investment advice about securities to retail customers, no less stringent than currently applied under Sections 206(1) and (2) of the Investment Advisers Act of 1940, wrote Annette Nazareth a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP, by way of background.