Will the Securities and Exchange Commission’s new package of broker and advisor conduct standards lead to a blurring of the line between brokers and advisors in investors’ minds?

The SEC hasn’t yet released the 1,400 pages of standards, only a one-page fact sheet. But this, along with the content and tone of commissioner and staff statements at this morning’s SEC vote approving the measure, is creating understandable advisor consternation.

At the heart of the advisor industry concerns is the SEC’s new interpretation of the “solely insignificant” exemption, which appears to broaden brokers’ ability to offer advice without having to register as advisors. Advisors are also worried about whether the SEC weakened advisors’ fiduciary standard.

“The jury is still out as to whether or not this will alleviate or exacerbate investor confusion and confusion regarding investment professionals and the duties they provide and standards they’re under,” said Gail Bernstein, general counsel of the Investment Adviser Association, which represents the nation's SEC-registered investment advisor firms.

“We’re not all confident yet how the SEC has handled this," she said. "To the extent that brokers’ ability to offer advice without registering is broadened, we do worry about what impact this will have on advisors. Advisors will continue to act in their clients’ best interest and provide services as they’ve always done. We hope the result of this rulemaking isn’t to further blur the line in how brokers offer their services."

As for the SEC’s new investment advisor standard, she said the IAA has steadfastly maintained it is “unnecessary” because that duty is widely understood and established in law, regulation and professional practice.

“While we are pleased that the commission seems to have made several of the clarifications we requested to the proposed interpretation, we would be disappointed if the commission dropped the most effective, widely used and straightforward articulation of the fiduciary duty—to put your client’s interest first at all times, an articulation that has long framed fiduciary duty,” Bernstein said.

Critics worry that the SEC’s decision to drop the requirement to put clients’ “best interest” first in the advisor standard was an intentional decision on the SEC’s part to create a more competitive, if less-regulated footing for brokers. After all, the agency even left the term “best interest” undefined in the separate broker standard and the brokerage industry is already hailing its new rule as “tougher” than advisors.

One major win for IAA is on the new customer relationship summary (CRS) disclosures approved by the SEC, which will allow firms to present their information in a Q&A format and, instead of requiring paper delivery, would allow video and other formats—all of which IAA fought for.

In contrast, the broker-dealer, insurance and mutual fund industries are embracing the new standards, which appear to fall far short of the fiduciary regulations for brokers they have battled against in court.

The best-interest regulation “will impose a materially heightened standard of conduct for broker-dealers when serving retail clients,” SIFMA President and CEO Kenneth E. Bentsen Jr. said in a statement.

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