The Securities and Exchange Commission is expected to vote on all three parts of its contentious Regulation Best Interest package of broker conduct and disclosure proposals on June 5.
One of the consumer advocates who has been fighting the proposal said she expects the SEC to approve the rule, which foes contend does more to protect brokers than investors.
“The timing of this vote suggests Chairman [Jay] Clayton is intent on pushing through a new standard for brokers that is backed only by anti-regulatory Republicans and the broker-dealer industry, whose harmful conduct it fails to check,” CFA Director of Investor Protection Barbara Roper said.
Commissioners will vote during an open meeting at the agency’s Washington, D.C., headquarters on whether to finalize all three parts of the conduct and disclosure package, which includes the following:
• Regulation Best Interest: a new rule to establish “a standard of conduct for broker-dealers and reps when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities.”
• Form CRS Relationship Summary: This requires investment advisors and broker-dealers to provide a relationship summary to retail investors to ostensibly disclose any conflicts of interest and how investors may be charged for the services.
• Standard of Conduct for Investment Advisors: a codification and interpretation of the standard of conduct for investment advisers.
Commissioners will also vote on whether to publish an SEC interpretation of the “solely incidental” provisions of the Investment Advisers Act of 1940, which state that any broker offering investors advice not “solely incidental” to the sale must register as an investment advisor and have complete fiduciary responsibility to put their clients’ interests first.
This “solely incidental” interpretation is seen by many policy experts as a pre-emptive strike to give the SEC a legal defense if it is sued by advisor and planning groups who are fiduciaries.
“The solely incidental guidance is the most interesting wrinkle in the June 5 package,” Duane Thompson, senior policy analyst at Fi360, a company that specializes in fiduciary consulting and training. “I would think it’s a defensive measure by the SEC in case Regulation Best Interest is challenged in court, given the plain language of the exemption that a broker may only provide incidental advice without having to register as a fiduciary investment advisor.”