New York and a half dozen other states accused the Securities and Exchange Commission of botching a final regulation intended to protect broker-dealer customers from conflicts of interest under the landmark Dodd-Frank Act passed nearly a decade ago.

The new rule, set to take effect Tuesday, continues to allow broker-dealers to market themselves as trusted advisers while giving recommendations that may leave conflicts undisclosed and “siphon investors’ hard-earned savings” as a result, the states said in a lawsuit filed late Monday in federal court in Manhattan.

The dispute relates to the SEC’s Regulation Best Interest, which was meant to bring the standard of conduct for broker-dealers on conflicts of interest in line with the stricter standards for financial advisers. The states say the new rule fails to meaningfully elevate broker-dealer standards beyond existing requirements and leaves key terms undefined.

New York Attorney General Letitia James said in a statement that the final rule puts the savings and retirement accounts of millions of Americans at risk by exposing them to potential conflicts of interest.

“Instead of adopting the investor protections of Dodd-Frank, this watered-down rule puts brokers first,” James said. “The SEC is now promulgating a rule that fails to address the confusion felt by consumers and fails to remedy the conflicting advice that motivated Congress to act in the first place.”

James is joined in the lawsuit by her counterparts in California, Connecticut, Delaware, Maine, New Mexico, Oregon and the District of Columbia. The attorneys general say their states will be harmed by the new law because it will lead to lower tax revenue on underperforming savings and retirement accounts.

The SEC’s press office didn’t return an email and phone call seeking comment.

A broker-dealer acts as both a broker, buying and selling securities for customers, and a dealer, making transactions for itself. The SEC said on its website in June that the regulation would enhance the broker-dealer standard of conduct beyond existing obligations and align it with the “reasonable expectations” of customers.

The rule requires broker-dealers to “act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer,” the SEC said on its website.

Under that standard, a broker-dealer could sell an investor a lower-quality, higher-cost investment “as long as that investment otherwise met the investors’ investment objectives,” according to the suit.

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