The U.S. Securities and Exchange Commission might be one step closer this week to untangling the confusing and conflicting rules about who provides financial advice and which standards they should be held to—but there’s still a long way to go.
Nearly eight years after the Dodd-Frank Act gave the SEC authority to craft stricter standards for broker conduct, the agency has proposed its own rules, with mixed but generally positive response from the financial services industry.
“The proposals, as discussed by the SEC, appear to be a step forward for investors,” wrote the generally pro-fiduciary Financial Planning Coalition in a statement. “We appreciate the opportunity to comment on these proposals and will make recommendations to strengthen them in keeping with what consumers expect and deserve—a fiduciary standard requiring financial professionals to put their clients’ interests first when providing financial advice.”
By a vote of 4 to 1, the SEC on Wednesday evening chose to release proposals for a “Best Interest Standard of Conduct” for broker-dealers and an “Adviser Standard of Conduct” for financial advisors. The proposals now go to the public for a 90-day comment period.
The proposals are laid out in a 1,000-page plan, with 1,800 pages of footnotes. Many advisors, fiduciary advocates, industry organizations and securities attorneys are just now poring through the documents.
Many of the SEC commissioners expressed lukewarm support for the proposal. The one who rejected it, Commissioner Kara Stein, a Democrat, argued that the proposed regulations were a toothless compromise next to the now-stalled fiduciary rule proposed by the U.S. Department of Labor.
“The name of the rule, in and of itself, is confusing and can cause retail investors to reasonably believe that broker-dealers are required to act in their best interests,” said Stein. “Perhaps it would be more accurate to call this regulation ‘Regulation Status Quo.’”
The DOL proposed its own fiduciary standards in 2016 that would apply to any financial intermediary providing recommendations or advice about investments in retirement accounts. While prior law binds all financial intermediaries to a fiduciary standard when giving recommendations within 401(k)s, the DOL proposal would extend such a standard to IRAs as well.
The U.S. Fifth Circuit Court of Appeals struck down the DOL’s rule in March. Industry groups were victorious in their suit, which, in part, argued that the DOL’s rule could prevent many Americans from accessing financial advice and investment products that could be helpful to their lifestyle and to their retirement planning. The American Council of Life Insurers was among the industry groups battling the DOL’s proposal.
“We are encouraged by the SEC proposal to implement a best interest standard of conduct that can be uniformly applied across all regulatory platforms—the states, Finra and the Department of Labor,” wrote the ACLI in a statement. “ACLI strongly supports comments made by SEC Chairman [Jay] Clayton at the meeting about the need for regulatory coordination. ACLI supports reasonable and appropriately tailored rules that require all sales professionals to act in consumers’ best interest.”