The Financial Services Institute’s proposal for streamlined, simplified conflict of interest disclosure appears to be making its way into the SEC's best interest proposal.

“Earlier this year we had meetings with [SEC] Chairman Jay Clayton and [SEC Director of the Division of Trading and Markets] Brett Redfearn and we are ... hearing that many of our themes that we’ve hit on in our advocacy” are starting to find their way into the proposal, FSI President Dale Brown told reporters at the FSI One Voice Conference in Dallas on Tuesday.

FSI represeants independent broker-dealers and their affiliated advisors.

According to Brown, provisions in an early draft of the proposal include:

• Short-form disclosure of conflicts of interest and compensation methods at the outset of engagement with clients.
• An SEC template that all firms and practitioners could use for disclosure.
• A clearly articulated, single, best interest of care.

The SEC proposal is designed to require that brokers and investment advisors put investors’ best interests first and that they disclose potential conflicts of interest, particularly compensation, that may influence the advice, products or services they’re offering. The proposal is expected to be released to the public in the second quarter of this year, according to Clayton’s public priorities letter for 2018.

“We’re pleased to see that all the hard work we’ve done on that issue over the past 10 years is coming to fruition,” Brown said. “One thing that Chairman Clayton has done is greatly narrow the SEC’s focus. ... They tell us that this is a top priority."

In anticipation of the proposal, the FSI is actively lobbying against a titles-based component of the SEC’s best interest proposal that would force its 40,000 members to differentiate themselves as either registered investment advisors or registered representatives, executives at the press conference said.

Most of FSI’s members are dually registered, so asking them to choose one title, when they may use both commission-based and fee-based products with the same client, is not workable, said David Bellaire, FSI’s executive vice president and general counsel.

“A titles-based proposal may sound elegant ... but would make regulation even more complicated and confusing. We’d prefer to see a single level of care regardless of title,” Bellaire said.

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