Last week the Securities and Exchange Commission voted 3-to-1 to approve a package of rules containing a best interest standard for broker/dealers.
SEC Commissioner Robert Jackson Jr. was the only dissenter.
Jackson stated, “My hope was that the rules we announced today would significantly raise the standard for investment advice in this country. I hoped to join my colleagues in announcing that the nation’s investor protection agency has left no doubt that, in America, investors come first. Sadly, I cannot say that. Rather than requiring Wall Street to put investors first, today’s rules retain a muddled standard that exposes millions of Americans to the costs of conflicted advice. Even worse, contrary to what Americans have heard for a generation, the Commission today concludes that investment advisors are not true fiduciaries.”
As well as Regulation Best Interest (BI), the measures included a relationship summary, Form CRS (an interpretation reaffirming the fiduciary duty for investment advisors) and an interpretation of “solely incidental,” which is a prong of the Investment Advisors Act of 1940. Only the “solely incidental” interpretation is a departure from the package originally proposed a year ago.
Reg BI and Form CRS will take effect 60 days following publication in the Federal Register, although firms will have until June 30, 2020, to comply. The approved version of Reg BI is very similar to the original proposal, and is meant to go beyond FINRA’s current suitability standard. The regulation is based on key fiduciary principles, cannot be satisfied through disclosure alone, and was created to fit the broker/dealer model. It will include a disclosure obligation, a care obligation, a conflict of interest obligation and a compliance obligation.
One change is that the care obligation will now require the broker/dealer to consider costs associated with recommendations, although it does not mandate the least expensive recommendation as a decision based on coast alone might not be in the best interest of an investor. The conflict of interest obligation mandates that firms must adopt written policies and procedures to identify and at a minimum disclose or eliminate such conflicts.
For a deeper discussion of the implications of the new regulation, please visit
SEC Approves Regulation Best Interest | Wealth Management