Galvin, seen as a strong ally of the Bay State’s senior senator, Elizabeth Warren, and often compared to former New York Governor Eliot Spitzer in his enforcement zeal, took aim at the commission in a lengthy statement released Thursday.
“The Securities and Exchange Commission had an opportunity yesterday to demonstrate that their recent statements about protecting working Americans’ hard-earned retirement savings were genuine,” he began. “I am sorry to say that their proposed ‘Best Interest’ rule fails to do that. This proposed rule appears to be drafted to appease the broker-dealer industry and their lobbyists, protecting the industry’s best interests instead of the best interests of investors.”
Referencing the Department of Labor’s own efforts in the fiduciary area, he noted that “Recommendations to retail investors should be made pursuant to a true and clear best interest fiduciary standard. That standard was reflected in the Department of Labor’s Fiduciary Rule. Instead of supporting the Department of Labor, the SEC provided a confusing conduct standard that is sorely inadequate to protect retail investors.”
Calling the SEC proposal “a watered-down” standard that simply restates current industry rules and allows certain dangerous conflicts to persist, he pointed specifically to what he said was the rule’s inability to prohibit conflicted actions, saying it would “provide support for recommendations of high-cost and proprietary investment products, where conflicts have been particularly harmful to retail investors.”
“How difficult would it have been to ban sales contests, which have been shown time and time again to promote horrific conflicted advice?” he rhetorically added. “Your life savings should not be used by brokers to win a trip to Bermuda.”
Galvin argued that the rule conspicuously moves away “from true fiduciary principles by relying on a legalistic ‘relationship summary’ document that is intended to describe the parameters of the relationship between the broker-dealer and the retail customer. This is a key indication that the SEC has backed away from a clear fiduciary duty for broker-dealers.”
Crucially, he concluded, the term “best interest” is not defined in the rulemaking package.
“This ambiguity will lay the groundwork for the same debates and litigation that exist today under the ‘suitability’ standard that applies to broker-dealers.”