Critics of the rule, including the Investment Association of America and the Financial Planning Association, are arguing that the proposal abrogates the explicit intent of Congress in the Investment Advisers Act of 1940, which strictly and explicitly limits broker’s offerings to “incidental advice” that carries no “special” compensation. The significant growth of b-d’s sales of asset-based advisory accounts in the face of a proposed regulation that will limit “best interest” to the moment of sale is likely to be a hot button of debate in the coming year.
FPA successfully sued the SEC in 2007, forcing the agency to rescind its so-called Merrill rule, which like Reg Best Interest, allowed brokers to offer advice without registering as IAs. Executives at both the IAA and FPA have said it is too early in the rulemaking process to seriously discuss whether they may sue the SEC if Reg BI is passed in its current form.