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SEC's Reg BI strengthens investor protections

Enhanced level of accountability is necessary to weed-out bad actors that tarnish industry and harm investor confidence

Feb 14, 2019 @ 11:12 am

By Christopher A. Iacovella

Each day, America's financial advisers go to work in communities across the country to help their neighbors develop plans to save for retirement, send their kids to college, buy a house, or meet other financial and family goals. In this business, relationships are everything. Trust and confidence between advisers and their clients must exist for a strong relationship to flourish.

Main Street financial firms have always sought to maintain the trust and confidence of their clients by acting in the best interest of those clients — not only to remain in business, but because it's the right thing to do. That is why the American Securities Association (ASA) has supported efforts by the Securities and Exchange Commission (SEC) to take regulatory action that codifies a "best-interest standard" into law. This enhanced level of accountability is necessary to weed-out the bad actors that tarnish the industry's reputation and harm the confidence of retail investors.

(More: Best the SEC can do or huge step backward? Industry leaders tussle over advice reform)

We strongly support Chairman Jay Clayton's moving the SEC forward to finalize its Regulation Best Interest (Reg BI) proposal. While the debate has unfortunately been hijacked and purposely misrepresented by political extremes on both sides of the aisle, the fact is that Reg BI will strengthen investor protections, protect retirement savers, and preserve investor choice.

The SEC Reg BI proposal improves investor protection by requiring financial firms and professionals to:

1. Put their customers interests first by not placing their own interests ahead of clients;

2. Disclose key facts about relationships, including fees and compensation related to financial products;

3. Exercise diligence, care and skill when making recommendations of investment products to make certain they are in the client's best interest; and

4. End high-pressure sales practices.

Importantly, Reg BI forces advisers to identify, disclose, and mitigate conflicts of interest. Mitigation significantly improves upon existing requirements, which merely require the disclosure of conflicts. Make no mistake, all of Reg BI's improvements are in the best interest of America's retirement savers and Main Street retail investors.

Those who question the merits of this proposal by suggesting that this rule does not adequately improve investor protection are playing fast and loose with legal words in order to create confusion among the investing public and delay the SEC's work. This is especially true of certain groups who continue to support the invalidated Department of Labor-backed approach which would generate wealth for the politically connected plaintiff bar, force Americans to only invest in passive index funds, and cut millions of Americans off from access to financial professionals. Unlike that outcome, Reg BI preserves the relationship between individuals planning for retirement and their advisers.

(More: Proposed SEC advice rule obscures distinctions between two business models)

At the end of the day, ASA members have been and will continue to put our clients first. We believe this is the only way to earn and maintain their trust and confidence. We know that if we fall short of this guiding principle, then clients will rightly choose to work with someone else. We remain committed to working with the SEC to finalize Reg BI and we applaud the commission's work to strengthen investor protections, improve accountability, and increase transparency. Not only is this smart public policy, it's the right thing to do.

Christopher A. Iacovella is the chief executive officer of the American Securities Association. Follow him on Twitter @AmerSecurities.

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