The Consumer Federation of America turned the heat up on the SEC ahead of the agency’s long-awaited vote on a best-interest proposal by blasting out a position paper that pointedly asks: “Who’s side is the SEC on?”
Depending on how the proposal is crafted, the SEC can protect consumers or it can preserve the status quo for the brokerage industry, the consumer group argued.
“[T]he proposal could require advice that is in the best interests of savers and retirees or it could preserve the ability of financial firms to profit unfairly at their customers’ expense. Tens of billions of dollars a year in Americans’ hard-earned savings are at stake,” said Barbara Roper, CFA director of investor protection, and Micah Hauptman, CFA's financial services counsel.
The “weak, disclosure-based standard” the industry has been lobbying for would do more harm than good, by creating the false impression that investors are protected when that is not the case, the consumer advocates added.
The SEC is scheduled to vote on a proposal on Wednesday.
According to the CFA, a truly consumer-friendly standard of conduct for brokers must:
1. Require brokers and advisers to act in their customers' best interests.
2. Stop companies from encouraging brokers to act against their clients' interests.
3. Stop financial professionals from marketing themselves as trusted advisors unless they actually have to meet the best-interest standard appropriate to that role.
“In evaluating the SEC’s proposed new standard, we’ll be looking to see whether it takes any steps to rein in industry practices that encourage and reward harmful advice,” the CFA said.
“When people turn to financial professionals for help with their investments, they expect those professionals to recommend the investments that are best for them,” the group added. “But that is not currently the case for brokers who operate under what is known as the 'suitability' standard that leaves them free to recommend the products that are most profitable for them, rather than those that are best for the customer.”
In particular, the CFA said it will be looking to see if the SEC takes steps to prohibit firms from intentionally creating incentives—such as sales quotas, sales contests and paying bonuses to reward the sale of particular products—that encourage financial professionals to base recommendations on their own financial interests rather than the customer’s best interests.