By Suzanne Barlyn and Jessica Toonkel
Nov 28 (Reuters) - The appointment of Elisse Walter as head
of the U.S. Securities and Exchange Commission leaves financial
advisers in the dark about potentially dramatic changes to the
business of managing money.
President Barack Obama on Monday named Walter, currently an
SEC commissioner, as chairman after the departure of Mary
Schapiro on Dec. 14. How long Walter will remain in the new role
As the so-called chairman designate, Walter can stay until
December 2013 without U.S. Senate confirmation. The White House
is said to be looking at other replacements and could nominate
The change of command creates some big questions for
advisers. First and foremost: whether Obama will renominate
Walter to serve longer, or, if she is not confirmed, who may
follow her. Other key issues include beefed-up ethical standards
for brokerage firm advisers and a possible new overseer for
other types of advisers who register with the SEC.
"It's the great unknown," said Knut Rostad, president of the
Institute for the Fiduciary Standard, an advocacy group.
Prospective names for the next SEC commissioner include Mary
John Miller, the Treasury Department's under secretary for
domestic finance, and Sallie Krawcheck, former president of
global wealth and investment management for Bank of America
Their views and experience could shape the landscape for
U.S. financial advisers.
Possible rule changes that may completely alter business for
some brokers have been afoot since the Dodd-Frank financial
reform law was passed in 2010. The new SEC chairman's views on
these rules can have long-lasting implications.
Currently, investment advisers, who register with the SEC,
must act as "fiduciaries" and recommend securities that are in
their clients' best interests. Brokers, who are licensed through
the Financial Industry Regulatory Authority, an industry-funded
watchdog, must recommend "suitable" products for clients based
on factors such as risk tolerance and age.
One possible rule change under consideration is that all
brokers would be held to the fiduciary standard. The industry
wants a new type of fiduciary standard that accommodates certain
business practices, such as selling company-branded securities,
which can pay brokers bigger commissions.
Meanwhile, there is an ongoing tug of war between the SEC
and the Financial Industry Regulatory Authority over which
entity should oversee registered investment advisers. The new
chairman is expected to weigh in on this issue, too.
INSIDERS VERSUS REGULATORS
Some brokerage advisers are already compiling a wish list of
attributes in a new SEC head. A future chairman with extensive
financial services industry experience, like Krawcheck, who
headed wealth management at both Bank of America and Citigroup
Inc, or Miller, a 26-year veteran of T. Rowe Price Group Inc,
might be able to approach these issues from a practical
perspective, according to industry specialists.
"It would really help to have someone who has worked in the
industry," said Robert Kurucza, a lawyer at Goodwin Procter LLP
in Washington, who worked in the SEC's division of investment
management in the 1980s.
Krawcheck may have the best chance of potential candidates
to strike compromises appealing to brokers and investor
advocates, said Barbara Roper, director of investor protection
for the Consumer Federation of America, an advocacy group.
Krawcheck was an early public advocate for an industry-wide
fiduciary when she headed up Bank of America's global wealth and
investment management division. She was ousted from Bank of
America in 2011.
She would be "particularly well positioned" to counter
questions raised by the industry about whether costs to
implement the standard justify the benefits, Roper said.
The question, of course, is whether candidates with insider
experience may be too close to the industry and push for rules
that favor them, Roper said.
Other possible contenders have long histories as regulators.
A trove of public statements makes their positions well-known.
In 2011, Walter, a former FINRA executive and official at
the Commodities Futures Trading Commission and SEC, wrote of her
enthusiastic support for a self-regulatory organization to
oversee registered investment advisers, who are now examined by
the SEC about once every 11 years.
Some, however, see Walter as conflicted, given her ties to
FINRA. It is funded by the brokerage industry and is lobbying to
become a self-regulatory organization for investment advisers.
Walter, 62, also outlined her concerns about different
regulations for securities brokers and registered investment
advisers in a 2009 speech.
FINRA's chief executive, Richard Ketchum, is also rumored as
a possibility. Since taking charge of FINRA in 2009, Ketchum has
been vocal about appointing a self-regulatory organization to
oversee registered investment advisers and the retail brokerage
industry's responsibility to act in the best interests clients.
Ketchum would likely receive a mixed reception from
financial advisers, especially those registered with the SEC and
facing the prospect of self-regulatory oversight, said Arthur
Laby, a securities law professor at Rutgers School of Law in
Camden, New Jersey.
But there is an upside for them: that change, which would
require congressional approval, is likely a long way off.
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