House Democrats question whether investors are protected under Regulation Best Interest

Lawmakers will seek more information in subcommittee hearing next week

Mar 6, 2019 @ 1:39 pm

By Mark Schoeff Jr.

House Democrats have concerns about whether the Securities and Exchange Commission's investment advice reform proposal will do enough to protect investors from conflicts of interest. They will seek more information on the measure next week.

The House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets will devote a hearing next Thursday to the SEC's measure, which centers on Regulation Best Interest that is designed to raise the broker standard of care.

The chairwoman of the full committee, Rep. Maxine Waters, D-Calif., was a champion of the now-defunct Department of Labor fiduciary rule, which would have required brokers to act in the best interests of their clients in retirement accounts.

Last fall, Ms. Waters sent a letter to SEC chairman Jay Clayton signed by 35 congressional Democrats that questioned whether the SEC proposal would raise broker requirements above the current suitability standard. It also asserted the SEC measure fell short of the fiduciary duty that investment advisers owe to their clients.

She continued to express worries Wednesday.

"When you have investment advisers who are not acting in [clients'] best interests but acting in their own best interests, it does not bode well for our senior investors in particular," Ms. Waters told reporters after a Capitol Hill press conference on an unrelated topic. "We're going to continue to pay some attention to that."

The SEC could issue a final advice reform rule as soon as this summer, and it's not clear how much influence Democrats will have over the process.

But now that they control the House, Democrats can call hearings to explore issues on their agenda and put pressure on regulators. It's not clear which SEC staff will testify next week, but it's not likely to be Mr. Clayton, given that it's a subcommittee hearing.

"We want more information and we want the best protections for investors," Rep. Carolyn Maloney, D-N.Y., chair of the subcommittee, said in an interview after the Capitol Hill press conference.

A legislative response to the SEC proposal isn't in the works.

"We have not organized anything at this point," Ms. Waters said.


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