While SEC officials say their proposed Regulation Best Interest (RBI) will require brokers to disclose conflicts of interest that cost investors, the proposal actually fails to even require that brokers disclose their fees and commissions, the Institute for the Fiduciary Standard said in its comment letter on Monday.

"This proposal actually does not require brokers to put customers' interests first, especially in the area of commissions and fees,” institute President Knut Rostad told Financial Advisor magazine.

It has been widely reported that the SEC is mandating fee disclosure, but that is inaccurate, Rostad said. “The normal person on the street interprets that to mean their broker will tell them what they actually pay or will pay. The SEC is saying, ‘No, no, what brokers are required to disclose is their sources of compensation and how they’re paid only.’”

The best-interest proposal “explicitly rejects requiring that a broker actually be required to disclose the fees a retail customer pays,” said the public comment letter from the institute, a Washington, D.C.-based advocacy group for independent registered investment advisors (RIAs).

The lack of fee disclosure is noteworthy since conflicted advice and hidden commissions and fees costs investors some $17 billion annually, according to the White House.

“We are not proposing a requirement that firms personalize the fee disclosure for their retail customers,” the SEC said in its proposal.

The agency, the institute says, wants brokers to discuss broadly “certain categories of fees they should expect to pay." But it goes on to say that the SEC "explicitly rejects requiring that a broker actually be required to disclose the fees a retail customer pays.”

Overall, the proposal “fails to provide a real best-interest standard and fails to require or urge that brokers eliminate conflicts or even mitigate them in any concrete and specific way,” the institute said.

Ironically, the institute noted, “RBI worries that if brokers eliminate conflicted recommendations they will lose revenue and their customers will be harmed by not buying these products.”

“RBI represents a major step towards codifying in SEC rulemaking principles and practices that further de-emphasize conflicts of interest and codes of ethics and differences between brokers and advisers, while advancing disclosure as the bulwark of investor protection,” the institute maintained in its SEC letter. Currently, registered investment advisors are held to a fiduciary standard of care, while brokers operate under Finra's suitability standard.

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