Wall Street is finally getting tougher rules that crack down on industry conflicts of interest. Bankers are hardly sweating it.
The U.S. Securities and Exchange Commission is poised to approve new requirements next week for selling stocks, bonds and other assets after brokers fended off the government’s attempts to restrict shady practices for almost a decade. But investor advocates are concerned the regulations fall short of what’s needed to prevent firms from taking advantage of clients, a worry underscored by the industry’s support of the SEC’s effort.
Among the positives for brokers: the rules are softer than Obama-era limits that they successfully sued to block, and Wall Street would rather have an SEC chief appointed by a President Donald Trump set policies than take its chances with what might happen should a Democrat win the White House in 2020.
Knut Rostad, the president of the Institute for the Fiduciary Standard, said the new SEC rules will give investors a false impression that brokers are being held to higher standards.
“This is all a big runaround,” said Rostad, whose group advocates for strict codes of conduct for financial professionals. “Brokers for the first time will be able to look clients in the face and say we are required by law to put your interests first.”
Lawsuits Coming?
Already, some pro-investor groups are contemplating a legal challenge -- meaning the debate could go on long after SEC commissioners vote on the rules June 5.
A spokeswoman for SEC Chairman Jay Clayton declined to comment on the specifics of the rule ahead of next week’s meeting. Clayton, a former bank lawyer appointed by Trump, has stressed that the new regulations are far from a giveaway to Wall Street and significantly raise the bar for brokers.
Clayton thrust himself into the contentious fight over industry standards shortly after joining the agency in 2017. Last year, the SEC issued a lengthy proposal designed to curb practices like contests that reward brokers for selling as many securities as possible. The plan also required better disclosures of internal marketing agreements that can drive up fees.
Broadly, the proposal called for brokers to act in the “best interest” of their clients. That’s a step up from now, where brokers are only required to recommend investments that they believe are suitable. Still, it’s not as strict as what’s known as a fiduciary standard, which demands that a customers’ interests be put first.