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FSI Wants Disclosure Regime for SEC’s Fiduciary Rule

November 1, 2017

The Financial Services Institute has suggested the SEC take a disclosure approach in drafting a uniform fiduciary rule as an alternative method to the best interest contract exemption put forth by the Department of Labor, ThinkAdvisor writes.

In a comment letter to the SEC, David Bellaire, FSI’s general counsel, says the regulator should use a two-tier client disclosure regime that would combine a concise document at the point of sale with a more comprehensive and detailed disclosure on the financial firm’s website, according to the publication. The first tier would inform investors of the most critical information at a time when it’s most useful, according to the letter cited by ThinkAdvisor.

Bellaire suggests this could include a statement on the firm’s best interest standard of care, nature and scope of the relationship between clients and the company, and a “general description” of the compensation going to the firm and the financial advisor, according to the publication.

As part of the two-tier approach, companies and individual advisors “should address material conflicts arising in a firm’s specific business model,” according to Bellaire, who adds “more disclosure does not result in better disclosure.”

The SEC is mulling over its own version of the fiduciary rule, which would apparently apply to all financial advisors. The watchdog has been gathering comments on various approaches since June.

The disclosure approach would be an alternative to the DOL’s best interest contract exemption provision, which lets retirement account advisors sell some commission-based products after signing a best-interest contract with the client, ThinkAdvisor writes.

The DOL’s rule, which purports to force retirement account advisors to put clients’ interests first, “is resulting in higher costs for the industry, which are passed to consumers in the form of reduced product choices and a loss of access,” Bellaire writes in the letter.


But Micah Hauptman, financial services counsel for the Consumer Federation of America, tells ThinkAdvisor that FSI’s suggested disclosure regime is “not actually a best-interest standard.”

“We know disclosure alone isn’t effective at mitigating conflicts of interest,” he tells the publication. “The conflicts in the broker-dealer business model often are too complex, opaque and perverse for ordinary investors to fully understand in order to make a truly informed decision.”

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.