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What’s in a Name? Plenty, Says Reg BI Dissenting Commissioner

June 10, 2019

The same day that the SEC voted to approve Regulation Best Interest, the only dissenting commissioner released a study suggesting that the language the SEC removed from the original proposal had in fact been used by firms less likely to offer conflicted advice, according to news reports.

On Wednesday, as part of the release of the final rules, the SEC removed language set out in its original proposal requiring investment advisors to “put clients’ interests first,” WealthManagement.com writes.

Yet a study dated the same day from commissioner Robert Jackson Jr. — the lone dissenter in the SEC’s vote to move ahead with the release — claims that firms which didn’t use such language were more likely to offer clients conflicted advice, according to the web publication.

A majority of investment advisory firms, accounting for 89% of assets under management, characterized their fiduciary duty as putting clients’ interests first, according to a study Jackson’s office conducted of more than 500,000 Form ADV filings, WealthManagement.com writes.

Robert Jackson Jr.

And “only a small sliver” of firms currently uses the language approved by the SEC, Jackson says, according to the web publication.

Some advisors characterize their fiduciary duty with languages such as “the welfare of our clients is not subordinated to any interests of ours or any of our personnel” or in other “subrogation” ways, according to the study, the web publication writes. And these advisors were more likely to engage in practices such as recommending securities in which they or a related person had some proprietary interest, which could be construed as conflicted advice, according to WealthManagement.com.

“In an analysis released by my office today, we show that advisors who use the language in today’s release are much more likely to offer conflicted advice,” Jackson says, according to the web publication. “And a well-known study shows that conflicted advice is the kind that leads to fraud that can hurt investors. Although I called last year for us to ‘survey market participants, from the largest institutions to the smallest retail investors, about whether and how they understand their legal rights and responsibilities,' none of these facts about what advisors tell investors are considered in today’s release.”

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