SEC Finally Proposes Fiduciary Rule Revamp
The Securities and Exchange Commission voted to propose its own widely-watched and long-awaited version of a fiduciary standard “to better serve savers and investors.”
Under the SEC’s proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.
“Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations,” the commission said Wednesday, in an echo of earlier DOL versions.
In addition to the Regulation Best Interest standard, the SEC proposed an interpretation to reaffirm and, in some cases, clarify the commission’s views of the fiduciary duty that investment advisors “owe to their clients. By highlighting principles relevant to the fiduciary duty, investment advisers and their clients would have greater clarity about advisers’ legal obligations.”
The SEC also promoted new short-form disclosure document which it billed as “a customer or client relationship summary,” called Form CRS.
It would provide retail investors with simple, easy-to-understand information about the nature of their relationship with their investment professional and would supplement other more detailed disclosures.
Finally, and in a nod to the proposed-Merrill Rule of a decade ago, the commission proposed to restrict certain broker-dealers and their financial professionals from using the terms “adviser” or “advisor” as part of their name or title with retail investors. Investment advisors and broker-dealers would also need to disclose their registration status with the commission in certain retail investor communications.
The announcement prompted critique and criticism from interested stakeholders.
“Retail investors currently are faced with a complex financial landscape littered with poorly disclosed conflicts of interest,” Jon Stein, CEO of 401(k) robo-firm Betterment for Business. “We’ve long been supportive of any attempt to improve the outcomes of investors and applaud the SEC’s efforts to improve transparency and the quality of investment services. We look forward to reading the rules when they’re published.”
“We are encouraged by the SEC proposal to implement a best interest standard of conduct that can be uniformly applied across all regulatory platforms – the states, FINRA and the Department of Labor,” American Council of Life Insurers (ACLI) President and CEO Dirk Kempthorne said in a statement. “ACLI strongly supports comments made by SEC Chairman Clayton at the meeting about the need for regulatory coordination.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of 401(k) Specialist and 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. Experienced financial services content executive specializing in creative new media delivery. He joined the American Retirement Association in 2023 as Chief Content Officer, overseeing communications for the organization, as well as its sister organizations.
