Many in the securities industry believe the SEC intends to approve its Regulation Best Interest proposal at its Wednesday meeting, but the extent to which the agency will change it’s controversial customer disclosure form and how far brokers can go in providing investment advice without registering are still up in the air.

The Securities and Exchange Commission is expected to continue deliberating over the "insignificant advice" proposal; less knowable is whether or not the rule will erode registered investment advisors’ natural advantage by allowing hybrid reps to to act as advisors without having to register or become fiduciaries.

“I’d expect the standard of conduct for brokers to pass in a similar form to what was proposed,” Joshua Deringer, a partner at Drinker Biddle, a national law firm that specializes in securities litigation, told Financial Advisor magazine. “I think this piece of the proposal was not particularly controversial, at least not from the broker-dealer side, because it doesn’t impose a fiduciary rule on brokers.

“I think the customer relationship summary [CRS] will pass, but have significant revisions from the original proposal, partially in an attempt to make it less legalese-heavy and more retail investor-oriented,” Deringer said.

Skip Schweiss, managing director of advisor advocacy and industry affairs for TD Ameritrade, agreed. “On Form CRS, the upfront disclosures, I think they’ll go ahead with those," he said. "This may be the most interesting part of the proposal in terms of what they’re going to do. This is at the heart of the most commentary they got. The templates were deemed by many, including many investors in their own focus groups, to be less useful than they could be.”

Investors at the SEC’s own investor roundtables and respondents from several national surveys found the proposed four-page disclosure template obtuse, unhelpful and misleading. Those findings alarmed many fiduciary and consumer advocates, partly because Form CRS is the part of Reg BI meant to spelling out to investors the potentially costly conflicts of interests that may influence a prospective broker, hybrid advisor or registered advisor. It also is supposed to explain to investors the types of compensation they will pay.

Firms can improve upon whatever final version of Form CRS the SEC approves, Deringer said. “With anything new, there will be some reactive response and then over time a best practice will evolve,” he said.

What the SEC does with its still unseen “insignificant advice” proposal and whether the regulators will attempt to broaden the limited exception Congress gave brokers in 1940 to offer advice without registering as a fiduciary is still the biggest wildcard. Any attempt to broaden congressional intent may make the agency vulnerable to a lawsuit for exceeding its authority.

The issue is at the core of the way advisors and reps compete and how they’re perceived by more astute investors, advisors say. One senior investor asked the SEC at its Baltimore town hall meeting on Reg BI last year, for example, “Why don’t you just call them all fiduciaries, since that is what we think they are?”

Advisors have lived with a fiduciary standard for 78 years that requires them to find products and services in the “best interest” of clients. Brokers, in contrast, have only been held to a suitable standard for the products and services they sell. Now the SEC’s conduct rule will give brokers the ability to tell investors that they, too, are operating in their “best interest,” critics argue.

While Schweiss said it is time that the SEC address confusion surrounding "incidental advice," he added, “I, like many in the industry, was surprised to see it show up on the agenda.”

From a competitive perspective, while some in the advisory industry have cried foul regarding the SEC allowing brokers to blur the fiduciary line, Deringer said that at the end of the day, registered investment advisors will still be the only fiduciaries in a room.

“To the extent that a fiduciary label is used as an advantage, will this change that? The SEC’s rule for brokers is less than a true fiduciary standard, so does it truly put brokers in a higher place than advisors? No. Could brokers use the term ‘best interest” to create that perception? Sure, I guess they could,” he said.

Will Reg BI help or hurt investors overall?

“I think it does raise the bar,” Schweiss continued. “I think it raises the bar in terms of the standard of care that brokers owe their customers.”

Deringer also sees a positive impact. “Do investors win? These types of proposals require firms to take a hard look at what they’re doing and bring consistency to practices," he said. "I’m not sure this rule causes investors to win, but these types of looks at fiduciary relationships probably as a whole are beneficial to investors."