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How the SEC’s Reg BI Fails to Raise Bar, Consumer Groups Claim

April 30, 2019

Three consumer groups have slammed the SEC’s proposed overhaul of investment advisor and broker conduct rules as merely codifying Finra’s existing suitability rules, according to news reports.

In its current form, the SEC’s Regulation Best Interest release imposes no obligation on investment professionals to abide by the best interest standard, Better Markets, the Consumer Federation of America and Consumer Action wrote to SEC Chairman Jay Clayton last week, according to ThinkAdvisor.

“Instead, the Release suggests that the intent of the rulemaking is to codify, rather than enhance, protections investors currently receive under Finra’s suitability standard, which can be satisfied by recommending any of a potentially large number of ‘suitable’ investments,” the groups wrote, according to the publication.

The obligations included in the SEC release, including an information collection requirement, the statement that disclosure alone isn’t enough to abide by the rule and the requirement that investment professionals’ recommendations be “consistent with the customers’ best interests” merely “reflect obligations that already exist under the FINRA suitability rule or have been articulated in related FINRA interpretations and case law,” the groups write, according to ThinkAdvisor. The SEC’s proposal, according to the consumer groups, doesn’t include examples of how it would go above Finra’s suitability requirement, the publication writes.

The groups are urging Clayton to revise the SEC’s proposed rule, according to ThinkAdvisor. Their proposed changes include the adoption of “a principles-based definition of best interest that unequivocally raises the bar over the existing suitability standard” and the incorporation of “an explicit requirement to consider costs in the rule text,” the groups write, according to the publication.

(Getty)

Earlier this month, SEC Commissioner Robert Jackson Jr. — the only member of the commission selected by congressional Democrats — said the SEC needs to make clear in its proposal that brokers would be required to act in the clients’ best interest.

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