XY Planning Network co-founder Michael Kitces responded Sunday to the Second Circuit Court of Appeals ruling that denied XYPN’s lawsuit against the SEC’s Regulation Best Interest (Reg BI), slated for implementation on June 30.
The suit, filed in conjunction with Ford Financial Solutions, certain states and the District of Columbia, argued in part that Reg BI would further confuse the investing public about the fiduciary standard of care to which financial professionals are held.
See accompanying piece on the court’s decision here
Kitces released the following statement, expressing disappointment in the court’s decision and his reasons for opposing Reg BI.
Kitces’ statement
While we appreciate the court’s acknowledgment that XYPN members and other registered investment advisers will be put at a competitive disadvantage by Regulation Best Interest—affirming our standing to challenge the rule—we are incredibly disappointed that the Courts have nonetheless allowed Regulation Best Interest to stand.
For 80 years, the Investment Advisers Act of 1940 has made it clear that brokers provide important but distinctly non-advice functions in the marketplace, while those who are in the business of advice itself must be registered as investment advisers and be held to a fiduciary standard.
Dodd-Frank gave the SEC the option to permit brokers to be in the business of personalized advice, under the stipulation that if they offered such advice, that advice must again be held to a fiduciary standard.
Yet while the Investment Advisers Act has long permitted brokers to be (non-fiduciary) brokers and advisers to be (fiduciary) advisers, and Dodd-Frank gave the SEC the option to allow brokers to become fiduciary advisers alongside investment advisers, the SEC chose neither of these paths with Regulation Best Interest, and in fact reinterpreted and dangerously broadened the solely incidental exemption specifically to allow more brokers to provide non-fiduciary advice under Regulation Best Interest.
As a result, we strongly disagree with the court’s permissive interpretation allowing the SEC to alter the substantive consumer protections Congress mandated in both the Investment Advisers Act and Dodd–Frank, will be exploring our options about whether to challenge this ruling further, and will continue to work proactively with the growing number of States and their own Securities regulators who understand the business of advice has always only ever been fiduciary …and should remain that way for the protection of consumers.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
