The full proposal -- which hasn’t been released publicly -- is also expected to expand how the agency defines churning, a practice in which brokers inappropriately make money off customers by excessively buying and selling securities, according to a person familiar with the plan. That change could make it easier to sanction brokers for misconduct, said the person who asked not to be identified discussing details that hadn’t been made public.
Consumer advocates contend that long-standing guidelines, which only mandate that brokers offer “suitable” investments, can lead to customers being overcharged or steered to high-fee products. SEC Commissioner Kara Stein, a Democrat, said the agency’s proposal won’t eliminate such conduct.
“Despite the hype, today’s proposals fail to provide comprehensive reform or adequately enhance existing rules,” said Stein, who voted against seeking public comment. “In fact, one might say the emperor has no clothes.”
Trade groups representing brokers, financial firms, mutual fund companies and insurers said they were generally pleased with the SEC proposal.
“This package of proposals has the potential to be a real win for all types of investors, from the young family starting to invest for the future to an older investor approaching retirement,” David Hirschmann, president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said in a statement.
The chamber was one of a number of associations that sued to overturn the Labor Department’s fiduciary rule. A federal appeals court vacated the regulation in a March decision, and it’s unclear whether the department will appeal.
Consumer advocates panned the proposal, agreeing with Stein that it would do little to help investors -- and could, actually, confuse them more.
“What we need is a straightforward, enforceable rule that would clearly require brokers to act in their clients’ best interests when giving advice,” said Marcus Stanley, policy director for Americans for Financial Reform, in a statement. “The proposal we heard described today does not come close to measuring up.”
And on Twitter, AFL-CIO President Richard Trumka panned the SEC’s action, calling it “insufficient to hold Wall Street accountable.”
“We won’t stop fighting,” Trumka wrote.