Wall Street’s main overseer is set to adopt new conflict-of-interest rules for brokers, a sweeping regulatory overhaul that has drawn criticism from investor advocates for being too lax.
The measure, expected to be approved by a divided U.S. Securities and Exchange Commission on Wednesday, will require brokers to act in the “best interest” of clients. What that actually means, however, remains in dispute and the changes are unlikely to end a decade-long fight over the protections.
SEC Chairman Jay Clayton has said the agency’s action will raise the bar for dealing with conflicts while leaving investors free to choose the type of financial professional that suits their needs. The rule -- which will affect tens of millions of investors who buy stocks and bonds to save for college, retirement and new homes -- has won widespread backing from financial firms.
Brokers will “finally have a rule that says you can’t put the firm’s interest ahead of the client,” said Christopher Iacovella, who represents regional brokerages as chief executive officer of the American Securities Association. Wall Street’s main trade group has also lauded the effort.
Support from the industry, which successfully sued to overturn Obama-era rules that were more stringent, has only heightened concern among opponents that the SEC measure is a giveaway to bankers that will confuse investors. Some are already contemplating a legal challenge and have been mobilizing a public relations campaign against the regulator.
The clash is poised to take center stage at the SEC’s Washington headquarters on Wednesday. AARP, the 38 million member lobbying organization that represents the interests of older Americans, is planning to send a group of representatives dressed in the group’s signature red attire.
“Our members will be there to show the faces of real people who will be impacted by the failure of the SEC to put investors’ interests first,” David Certner, AARP’s legislative policy director, said in an emailed statement.
The opponents are particularly concerned that the rule package will go beyond setting standards for brokers and end up weakening the long-standing fiduciary obligation for investment advisers. Consumer advocates have long argued that both should be held to the same strict obligation, even though they have slightly different business models.
John Britt, a retired SEC enforcement attorney who is writing a book on investor protection, called the rule a “fake regulation’’ that does more to help brokers than their customers.
“If a securities professional recommends that his client purchase a particular stock, he is giving investment advice,’’ Britt said. “And if he’s giving investment advice, he should have a fiduciary duty to his client – nothing less.’’