Even with Wall Street and consumer advocates allied in pushing for it, a Securities and Exchange Commission proposal to raise standards for brokers advising retail investors has run aground.
The agency, which has been drafting a rule for almost two years, has scheduled no action on the measure even as 2012 wanes and a presidential election approaches.
SEC Chairman Mary Schapiro, who pushed to include the measure in the 2010 Dodd-Frank Act to ensure clients receive equal treatment from brokers and investment advisers, said other rules will probably take precedence in coming months.
"It's important for us to get this done, but Congress handed us a lot of important things to do," Schapiro said in an interview. "We continue to advance this issue within the building and remain committed to it."
Dodd-Frank, an overhaul of financial regulation passed in the wake of the 2008 credit crisis, instructed the SEC to consider mandating that brokers operate under a fiduciary standard as rigorous as that for investment advisers.
Barbara Roper, director of investor protection for the Consumer Federation of America, said there's rare common ground between Wall Street and consumer advocates on the need for the rule.
"It's hard to imagine how they could possibly get from where they are to a final rule in the remainder of this year," Roper said. "It shouldn't have been this hard."
Schapiro declined to predict when the SEC will act on the broker standard, which is considered an optional rule under Dodd-Frank. The agency is still "steadily working through all the mandated rulemakings," she said.
Because it's not required by law, a Republican presidential victory and a resulting change in the SEC's chairmanship could mean the rule is dropped completely.
The chairman is facing pressure from those who want the change, and meets tomorrow with a group of advocates including John Bogle, founder of mutual fund company Vanguard Group Inc. According to a statement, the group will present a "fiduciary declaration" signed by past regulators such as former FDIC chief Sheila Bair, former Federal Reserve Chairman Paul Volcker and Arthur Levitt, a former SEC chairman.
Retail investors typically put their money in the hands of broker-dealers or investment advisers. Brokers often earn commissions on sales and currently work under a professional standard that requires them to promote products "suitable" for clients. SEC-registered investment advisers often work for set fees and manage portfolios under a higher standard that their advice be in customers' "best interests."
The agency's 2011 report -- opposed at the time by the SEC's two Republican commissioners -- said consumers are often baffled by the distinction between brokers and advisers. The report recommended a uniform standard "to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser."
Schapiro called the change a priority and said in December that "it remains difficult to justify" two standards for the same type of advice.
In a departure from criticism of other Dodd-Frank rules, the Securities Industry and Financial Markets Association, the Wall Street trade group, supports the change.
"Sifma is very much in favor of establishing a new uniform fiduciary standard for both brokers and advisers where they're basically doing the same thing for retail customers," Ira Hammerman, Sifma's general counsel, said in an interview. "There are literally trillions of dollars of individual savings and investments that we're talking about here."
The fiduciary idea has taken "a back seat" to rules the SEC has to get done, Hammerman said, and it's "difficult to expect" the rule to be adopted this year.
Despite Wall Street support, some Republicans oppose the rule. U.S. Representative Scott Garrett, a New Jersey Republican who heads a House subcommittee that oversees the SEC, said in a December letter to Schapiro that a hearing he held produced a "consensus view that there is currently no evidentiary basis for proposing new standard-of-conduct regulations."
A court decision has contributed to the delay. In 2011, the U.S. Court of Appeals in Washington rejected an unrelated SEC rule, saying the agency failed to adequately assess the costs. Since then, the SEC has returned to the drawing board to bolster cost-benefit cases for many rules.
For the uniform fiduciary standard, the SEC plans to first put out a request for public comments on its potential costs. After a 60- or 90-day comment period, the agency would issue a proposal that would then also require a public-comment process and revisions before commissioners could vote. Even if started today, the typical process would extend well into 2013.
The fiduciary standard should apply to institutional money managers as well as brokerages and investment advisers, said Bogle, who plans to attend the meeting tomorrow at the SEC.
"The industry is not performing up to its potential to serve investors," said Bogle, who is confident the change will happen but isn't sure when. "We can never eliminate conflicts of interest, but they can be ameliorated by this standard."
While the SEC writes a rule that Schapiro has described as "more disclosure oriented," the U.S. Labor Department is working on a similar rule to make investment professionals more accountable for the advice they give to employers and individuals in retirement plans such as 401(k)s and individual retirement accounts known as IRAs. Its implementation was delayed last year after firms such as Morgan Stanley Smith Barney and JPMorgan Chase & Co. said it was too broad.
The Labor Department is continuing to work on its initiative and doesn't expect the rule to be proposed again before the end of the year, Jason Surbey, a spokesman for the agency, said in an e-mail.
"The future of this rulemaking from both agencies depends somewhat on the outcome of the election," said Knut Rostad, president of the Institute for the Fiduciary Standard that organized the meeting with Schapiro. "One scenario is that it could be dormant for a long time."
Among those knocking on Schapiro's door tomorrow, Tamar Frankel, a professor at Boston University's law school, said she harbors a "very small hope" that the effort won't die.
"This has to continue until people realize how important it is," said Frankel, a specialist in fiduciary law and financial regulations who is concerned investors will be sold inappropriate products or overcharged without the rule. "With millions of Americans retiring, this scares me."
Levitt, an adviser to Carlyle Group LP and Goldman Sachs Group Inc. and board member of Bloomberg LP, parent of Bloomberg News, said he thinks brokers and advisers should generally be treated the same.
"I think the chairwoman feels this is a legacy issue," Levitt said of Schapiro.