In 2020, Kitces and numerous state attorneys general argued that the SEC did not have the authority to create Reg BI, a retail advice rule that holds brokers to a “best interest” standard, rather than requiring them to act as a fiduciary to clients. The U.S. Court of Appeals for the Second Circuit ruled against the XY Planning Network, saying the rule was “not arbitrary and capricious” because the Dodd-Frank Act gave the agency the authority to create the regulation.
Kitces said his organization is now arguing “when brokers provide brokerage services, true brokerage services, buying and selling stocks and bonds, facilitating capital formation, issuing securities in the public markets—the original function of [a] broker-dealer—we think there’s absolutely nothing wrong with that. There’s no reason to subject that to a fiduciary rule.”
Kitces says he hopes the political environment has become more amenable to change with the Joe Biden administration in place, and noted developments such as SEC Chairman Gary Gensler recently hiring investor protection specialist Barbara Roper, formerly of the Consumer Federation of America, as a senior advisor.
After Biden won the presidency, Kitces said the SEC signaled its intention to enforce Reg BI as stringently as possible.
But that’s not enough, Kitces said. “There’s nothing wrong with Reg BI as it applies to brokers, but it still does not fundamentally address the issue of when someone stops being a broker subject to Reg BI and begins to become a registered advisor subject to a fiduciary duty.”