SEC panel votes to urge agency to strengthen advice rule proposal

The Investor Advisory Committee suggests clarifying that Regulation Best Interest is a fiduciary standard

Nov 7, 2018 @ 4:35 pm

By Mark Schoeff Jr.

A panel established to speak for ordinary investors to the Securities and Exchange Commission voted Wednesday to urge the agency to strengthen its investment advice reform proposal by putting tougher requirements on brokers.

The SEC Investor Advisory Committee voted 16-3 to send the recommendations to the five SEC members as they work on crafting a final rule. SEC chairman Jay Clayton has not indicated when the final package will be released.

The committee's eight-page recommendation calls for changes to the centerpiece of the SEC proposal — Regulation Best Interest, which is designed to raise advice standards for brokers.

The committee calls on the SEC to clarify that the best interest obligation for brokers means they must recommend products and strategies they believe are the best available options for investors at the time the advice is given.

The panel also said recommendations about account types and whether to roll over money from a 401(k) to an individual retirement account must be made in the best interests of the investor.

In addition, it said the SEC should make explicit in its proposal that Regulation Best Interest is a fiduciary standard that would be uniform with the fiduciary requirement for investment advisers, but would vary in the way it is applied to brokers and advisers.

"These are recommendations to enhance the proposal, not substitute a different approach," Barbara Roper, director of investor protection at the Consumer Federation of America and the principal author of the panel's proposal, said during a conference call of the group.

She said that under the IAC's approach, the obligations attached to the fiduciary standard would "follow the contours of the relationship" that advisers and brokers have with their clients.

"You'd see a standard that is flexible enough to apply to the variety of ways that advice and recommendations are offered to retail investors," Ms. Roper said.

By forcing brokers to recommend the best available options to investors, the committee is trying to distinguish Regulation Best Interest from the suitability rule that now governs brokers.

"We're seeking to sort of narrow the pool of recommendations that would satisfy best interest beyond those that satisfy suitability, not arrive at the perfect recommendation for an investor," Ms. Roper said.

Mr. Clayton attended the meeting but didn't offer an immediate response to the recommendations. Sometimes the SEC incorporates IAC guidance into its rulemaking and sometimes ignores it.

Some of the IAC members who voted to advance the recommendations noted they were opposed to some of the language. But the group agreed that a "significant majority" backed the document.


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