Joining seven states and the District of Columbia, the XY Planning Network is suing the SEC, claiming that Regulation Best Interest harms its network of more than 1,000 independent advisors by putting fiduciary planners at a competitive disadvantage.
The lawsuit also claims Reg BI does not meet the standards of the Investment Advisers Act of 1940, which requires financial advisors to register with regulators and become subject to a fiduciary standard if they are compensated for financial planning.
Reg BI gives broker-dealers an edge over financial planners by allowing them to market and provide comprehensive financial planning to consumers, while subject to a lower standard than that of fiduciary planners. It also prevents RIAs from differentiating themselves as fiduciaries.
Under the current rule, the only area subject to a fiduciary standard is a managed account opened for a client. By definition, everything else gets regulated under the lower broker dealer standard.
Reg BI was hotly contested when it was proposed, with thousands of comment letters sent to the commission before the rule was adopted in June. XYPN’s comment letter was cited multiple times in the final rule.
The legal challenge follows years of bitter struggles over finding the appropriate standard of conduct. Most notable was the legal jousting concerning the now-defunct Department of Labor fiduciary rule. Another example, the CFP Board’s effort to strengthen its fiduciary requirement for planners, faced significant pushback—and equally vocal support—from the industry.
The lawsuit follows a legal challenge filed by eight attorneys general against the SEC in the Southern District of New York. The attorneys general represent New York, California, Connecticut, Delaware, Maine, New Mexico, Oregon and the District of Columbia. Further complicating the matter are several state securities regulators proposing their own fiduciary rules, with some citing the SEC’s Reg BI as motivation.
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XYPN sues SEC to overturn Regulation Best Interest | Financial-Planning.com