Good afternoon. I’m Ira Hammerman, executive vice president and general counsel at SIFMA, and I would like to welcome you to today’s “Leaders and Experts” Forum.  Before we begin, I would like to extend my thanks to The Bates Group, our partner on this event, and in particular David Birnbaum of Bates for beginning the dialogue with SIFMA that culminated in today’s forum.  I’d also like to thank our sponsor, the law firm of Bressler, Amery & Ross, and extend a special welcome and thank you to Brian Amery for all he has done to serve our industry over the years and for his firm’s unwavering support of so many SIFMA initiatives through the years.  Finally, I would also like to thank our keynote speaker, Dr. Scott Bauguess, deputy director of the Division of Economic and Risk Analysis and deputy chief economist at the SEC, as well as all of the speakers on today’s robust program.  We very much appreciate your participation in this forum.

There have been an ambitious number of regulatory and enforcement initiatives ongoing in 2015, and a few more about to be rolled out.  As we look towards the second half of the year, I wanted to highlight during my 90 minute presentation (just kidding) two of these that are at the top of SIFMA’s long list of priorities.

The first is the DOL’s re-proposal of its “conflict of interest” rule, which it first introduced in 2010.  The clock is now ticking on the period for public comment, with comments due in July. This is a voluminous rule proposal—over 110 pages, or 400 columns of Federal Register type— where the details and fine print matter.  If done improperly, the DOL rulemaking will actually hurt investors saving for retirement and make the process that much more expensive for all concerned.  With so much at stake, we want to ensure the DOL protects investor choice and doesn’t unnecessarily reduce access to education or raise costs, particularly for low and middle income savers.

SIFMA’s members, who include broker-dealers, banks and asset managers, and who provide commission based brokerage services under the Exchange Act and fee based investment advisory services under the Advisors Act, long ago endorsed a best interest or uniform fiduciary standard of care for all retail investors, not just the retirement sector. In fact, we endorsed this approach long before Congress enacted Section 913 of Dodd-Frank.  We have subsequently made our position very clear in comment letters to the SEC in 2010, 2011, 2012 and 2013.  Notice a pattern here? Let me be clear — SIFMA supports the SEC developing a best interest standard when broker-dealers provide personalized investment advice about securities to retail investors.  The clients’ best interests deserve to be put first.

While the SEC has not yet acted under the authority explicitly granted to it by Congress, it is worth noting that the rules and precedents governing broker-dealer conduct with respect to retail investors, both in retirement and non-retirement accounts, have migrated toward a “best interest standard.”  FINRA, as a congressionally mandated independent regulatory organization which writes and enforces rules governing broker-dealer conduct, has been refining its definition of suitability under Rule 2111 and most recently through guidance related to 401(k) rollovers under Reg Notice 13-45 to require brokers to put clients’ best interests ahead of their own.  Further, investor claims in FINRA arbitration routinely include a fiduciary duty component.

The debate is not if, but how we should implement such a standard. In our view, a best interest of the customer standard should be consistent across the entire retail market.  It should also be consistent with the intent of Congress, as defined in Section 913, that the SEC be the expert agency to analyze the issues and take the lead.

However, as we dig deeper into the DOL’s proposed rule, we are very concerned that it will actually harm the savers it intends to protect, as it appears to put forward a very prescriptive set of requirements that are extremely complex to understand and implement, likely to result in increased costs for investors, limit the ability of financial firms to provide education and make saving for retirement even harder.

The DOL’s proposed definition of who is a fiduciary is very broad – encompassing many more activities than was ever intended, or that the Department originally proposed in 2010. For example, the seller’s exception in 2010 at least allowed brokers to market their products and activities to retail customers without being deemed ERISA fiduciaries.  This time around, there is no seller’s exception to market one’s services or products to a retail customer or even to sell a plan to a small business owner.  In addition, while there is an education exception to being a fiduciary, it is more narrowly crafted than the education bulletin that has been in place at DOL since 1996.  Under the current proposal, one can no longer name any specific investments without the activity becoming a fiduciary activity under ERISA.

The Best Interest Contract Exemption would subject firms and advisors to a new legal liability (on top of existing legal liability), explicitly limit investor choice of product, impose level fees at the firm level and thus seek to set market prices and require firms to develop and build unprecedented new disclosure and compliance regimes, some of which may well conflict with other securities laws.

Yesterday, in remarks at FINRA’s annual compliance conference in Washington, FINRA chairman and CEO Rick Ketchum outlined his goal for the broker-dealer industry to adopt a best interest standard with core elements to ensure that customers’ interests do indeed come first.  He also detailed his practical concerns with the DOL’s proposal and stated “the current Labor proposal is not the appropriate way to meet that goal.”

First, he noted that the warranty and contractual mechanism used by the DOL to address their limited IRA enforcement jurisdiction appears to be problematic because it moves enforcement of these provisions to civil class action lawsuits or arbitrations where the legal focus must be on a contractual interpretation. Second, Mr. Ketchum asserts that there is insufficient workable guidance provided either to the firm or the judicial arbiter on how to manage conflicts in most firms’ present business models other than moving to pure asset-based fees, or a completely fee-neutral environment. And third, Mr. Ketchum believes it is not optimal to apply a different legal standard to IRAs and 401(k)s than to the rest of an investor’s securities assets, as many investors simply do not plan for their retirement by segregating tax-advantaged vehicles from their other investment strategies.

As you know, Rick has spent nearly his entire 40-year career as a securities regulator.  He’s expert in how markets function and how the broker-dealer model operates and serves investors.  And, most importantly, he’s spent a career protecting individual investors.  If he’s concerned about the DOL approach, I sincerely hope others begin to listen.

Rather than adopting a policy prerogative that will apply across the entire retail market place, our policy makers in Washington are headed in a direction of bifurcated rules, compliance and disclosure regimes imposed on the same market participants from different regulators. It is hard to see how the industry won’t be forced to build duplicative and redundant systems that will further affect costs.

SIFMA will continue to review the rule proposal and will provide more substantive comments focused on the need to protect investor choice regarding what type of financial professionals, products, services and methods of payments should be available to investors.

Turning now to another priority area, SIFMA has also been working tirelessly to help the industry in its cybersecurity and business continuity planning efforts. Cybersecurity has quickly become a top issue for our member firms and the country at large.  Even the President of the United States is not immune as published reports confirm that the President’s email correspondence on an unclassified computer system was hacked.  The threat, and associated costs, posed by cyber criminals, hacktivists, nation-states and terrorists seems to be increasing each day.  A 2014 survey commissioned by HP, in partnership with the Ponemon Institute, found that the average cost of cyber crime for a U.S. company is $12.7 million per year, with a range from $1.6 million to $61 million each year per company. That’s nearly double what the same study found in 2010, where the average cost was $6.5 million per company.

SIFMA is helping the financial services industry by providing a forum for firms to test their cyber response procedures and develop protocols around information sharing and response. We are also promoting adoption of the NIST cyber framework, developing best practices for firms to help mitigate cyber threats which include enhanced information sharing capabilities, and advocating for Congressional action to enhance a firms’ ability to work with its government partners. We firmly believe that a robust partnership between the public and private sector is the most effective way to mitigate cyber threats, and as such, we have been working closely with our government partners to help promote coordination and other practices that strengthen the collective response and defense effort.

Now that I have thoroughly killed the mood with talk of the DOL and cyber terror threats, I would like to turn to happier thoughts and introduce Brian Amery, managing principal at Bressler, Amery & Ross.  Brian – whom I learned yesterday is a  fellow Georgetown Law Alum — will moderate our first panel of the day, covering the SEC and regulatory priorities impacting wealth management.  Please join me in welcoming Brian and the panel.