Fiduciary and investor advocates from 13 groups are meeting today in Washington, D.C., to determine whether they can agree on a 2019 strategy for amending and publicizing flaws in the Securities and Exchange Commission’s Regulation Best Interest proposal, which they believe protects Wall Street at the expense of consumers.
Representatives from the Financial Planning Association, the CFA Institute, the Consumer Federation of America and the Public Investors Arbitration Bar Association are among the groups meeting today to ascertain whether they can agree on strategies for publicizing and attacking flaws in the SEC proposal, which is supposed to establish tougher standards of conduct for investment professionals. The groups claim the proposal will weaken consumer protections by providing hybrid brokers—some 90% of the industry—with an exclusion from tough investment advisor regulation that would require them to mitigate many of the conflicts of interests that can be costly to investors.
In addition to advocating for a joint statement on the regulation, the Institute for the Fiduciary Standard, which is hosting the meeting, is also pressing for controversial support for state fiduciary initiatives, such as New Jersey’s rule.
One attendee at the meeting was Micah Hauptman, the financial services counsel at the Consumer Federal of America.
“What I can talk about is the CFA’s ongoing strategy and priorities, which are that Reg BI protect investors and not the brokerage industry,” said Hauptman. “If the SEC is going to call this Regulation Best Interest, it should mean best interest for investors. And the only way to ensure that investors’ best interests are served is to rein in all the perverse incentives that broker-dealers use to purposely encourage and reward conflicts and harmful advice.”
A scheduled legislative panel at the event is entitled: “What immediate steps can be taken to materially improve … or kill … Reg BI?”
The chief architect of the Reg BI initiative, SEC Chairman Jay Clayton, has repeatedly claimed the proposal will improve the steps brokers must take to diminish their conflicts while preserving the transactional nature of the brokerage business, which he said is critical to providing small investors with advisory assistance.
Representatives at the meeting are expected to vote on whether to adopt a joint declaration “that identifies essential changes that must be made” to the SEC’s proposed rules. According to the group, the SEC rules should:
- Clearly spell out that brokers are hired to distribute products, that their primary obligation is to their firm and, absent complete mitigation of incentive-based compensation, that consumers are in sales relationships when they work with brokers;
- Require brokers to always put customers’ interests first, including all situations where brokers offer advice related to investing, rolling over qualified retirement plans and opening brokerage or advisory accounts;
- Mandate that brokers take specific steps to mitigate conflicts. Mitigation should require brokers to obtain written, informed and intelligent client consent and affirmation that recommendations are fair and reasonable, critics said;
- Ensure that brokers’ titles accurately communicate their standard. Critics want Reg BI modified to prohibit brokers from using terms and titles intended to communicate a relationship of trust. These critics want to ban the use of adjectives such as “financial” or “investment” with nouns such as “advisor,” “consultant” or “planner”;
- Hold to a fiduciary standard at all times dual-registered or hybrid brokers who hold themselves out as advisors.
This meeting is the latest in an ongoing series of collaborations, letters, speeches and sound bites fiduciary advocates have made in an attempt to press their concerns with the SEC about alleged flaws in the proposal.
“If the SEC finalizes a rule that is only supported by the brokerage industry and Republicans,” Hauptman added, “Chairman Clayton should expect that we’ll be right back here when there is a Democratic administration to ensure that investor protections regulating conflict of interests are put in place. And all his work will be for naught.”