The firm is also focusing on disclosure with respect to its entire line up of products and how to best document and disclose conflicts that may cost investors, she said, including drilling down into the direct and indirect compensation that reps and financial advisors are paid.
“Suitability means it’s reasonable for you given your investment goals and objectives,” said Oroschakoff, formerly a securities attorney who defended firms against suitability claims. “It doesn’t have to be the best solution, it doesn’t have to be the cheapest solution, it just has to be appropriate for you.
“And that’s a lower standard than best interest,” she argued.
“I know that there has been commentary that says that this is no more than suitability. I don’t agree with that. I think putting customers' best interest first and the associated disclosure obligations are a much higher standard to the customer than the existing suitability standard,” Oroschaff added.
“The thing about having a best interest standard is that it is clear to customer what you’re duty is. Customer do not come to you understanding what suitability is. They will understand best interest. It will address customer confusion,” she continued.
While firms work to eliminate conflicts, Gonzalez said that it was important to her as she helped write Reg BI to preserve commissioned-based brokerage account offerings, which she said the industry began eliminating in response to the DOL rule to the disadvantage of smaller, buy-and-hold investors.
“What we’re trying to do is raise the standard of care that brokers have with respect to when they make recommendations to customers and at the same time find a way to preserve the broker advice model,” she said.
“Oftentimes, and I think this often gets lost in the conversation, it is the cheapest option for investors, particularly long-term, buy-and-hold investors. If you’re investing for retirement, you’re better off just paying a commission one time than paying 1 to 2 percent every year forever on that product,” she said.
Gonzalez also contended that fee-only registered investment advisors who are fiduciaries are not without conflicts. “I think it’s wrong when people say fiduciaries have no conflicts,” she said. To that end, the SEC has also proposed an ancillary rule that would codify all existing regulation for RIAs as part of the Reg BI package.