Powerful interests and actors are lining up against the SEC’s Regulation Best Interest, which requires broker-dealers and their registered reps to act in the best interest of the client when investment recommendations are made.
While meant to avoid conflicts of interest, critics contend it doesn’t go far enough in its regulatory oversight and will cause confusion in the marketplace about various rules and roles that govern financial professionals.
Former Congressman Barney Frank, D-MA, and Former Senator Chris Dodd D-CT, the political duo behind 2010’s Dodd-Frank Wall Street Reform Act, have added their names to an amicus brief filed in support of a lawsuit challenging Reg BI specifically on the grounds that it failed to adhere to provisions of Dodd-Frank.
The suit, from XY Planning Network and outspoken industry personality Michael Kitces, claims “the SEC has exceeded its authority by impermissibly trying to re-write the registration requirements to become an investment adviser,” and that operating under a fiduciary standard of care is paramount.
Amicus argument
The supporting brief argues as much, noting that “the boundaries between the services provided by broker-dealers and investment advisers [have] eroded.”
“[M]any retail investors do not understand and are confused by the roles played by investment advisers and broker-dealers and the impact of the different regulatory regimes that apply to each,” it contends. “Most people in this country think that [a fiduciary duty of care between broker-dealers and their clients] already exists. It doesn’t.”
The SEC needed to harmonize the standard of care for broker-dealers and investment advisors but did not, and the “Best Interest rule perpetuates the very inconsistency in standards of care that Congress Passed the Dodd-Frank Act to fix.”
In short, it concludes, “the SEC’s rule fails to harmonize the standards for broker-dealers and investment advisers through a fiduciary rule, and is therefore at odds with the text and structure of Section 913, as well as Congress’ plan in passing it. The rule cannot stand.”
High-profile current members of Congress also signed onto the brief, including Rep. Maxine Waters, D-CA, and Rep. Jerrold Nadler, D-NY.
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.
