What does working in a client’s best interest mean? According to critics, you might not know from reading the Securities and Exchange Commission’s recently released “Regulation Best Interest.”

In fact, they complain that “best interest” isn’t even defined in “Reg BI”—the agency’s first attempt in more than a decade to improve brokers’ sales standards and reduce conflicts of interest. The proposal was released April 16.

The regulation has consumer advocates—and even some SEC commissioners—asking how brokers will know what best practices to follow and what conflicts to avoid when working with investors—because the consumer’s “best interest” is not nailed down precisely.

Dalia Blass, the agency’s director of investment management, got out in front of the question at this week’s Investment Management Institute 2018 conference, sponsored by the Practising Law Institute, in New York.

“Although we have not defined the term in the proposed rule text, we have defined the contours of the obligation,” Blass told attorneys and compliance executives in the audience. “A broker-dealer cannot put its interests ahead of the retail customer’s and must comply with specific disclosure, care and conflict-of-interest obligations.

“As advisors know, a principles-based standard can serve Main Street investors well,” she said. “Again, one size does not fit all. This approach would provide valuable flexibility to recognize how customers vary from each other and how the industry may change over time.”

The proposed regulation does not provide customers with the fiduciary standard that advisors are held to by law, which requires them to put their customers’ interests above their own at all times when selecting and recommending investments. Brokers for years have been subject to a lesser “suitability” or “good enough” standard when selling products to customers.

As recent SEC and Finra cases against brokers and their firms have demonstrated, a suitability standard has not stopped brokers from pushing the products that pay them the most, even if there are better, less expensive options for investors.

How Does It Compare?

How does the proposed Regulation BI compare to existing advisor standards? The proposal “draws from principles that apply to investment advice under other regulatory regimes, yet it reflects the structure and characteristic of a broker-dealer’s relationship with retail customers,” Blass said.

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