House Democrats call on SEC to strengthen Regulation Best Interest

At subcommittee hearing Thursday, congress members express concerns about investor protection under agency's advice reform proposal

Mar 14, 2019 @ 2:28 pm

By Mark Schoeff Jr.

House Democrats are calling on the Securities and Exchange Commission to strengthen its investment advice reform proposal.

In the first hearing about the measure since the party took over the House in last year's elections, Rep. Carolyn Maloney, D-N.Y., said the SEC's so-called Regulation Best Interest, which is designed to raise broker conduct above the current suitability standard, falls short of needed investor protections.

"While the SEC's Reg BI may be an improvement on the status quo, it is still far too weak," Ms. Maloney, chairwoman of the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, said at a meeting of the panel Thursday.

Unlike the now-defunct Labor Department fiduciary rule, Ms. Maloney asserted the SEC proposal relies too much on disclosure of conflicts of interest rather than their elimination. Sean Casten, D-Ill., indicated at the hearing he is working on a bill that would require the agency to conduct usability tests regarding disclosures to retail investors.

Ms. Maloney also said the SEC measure would allow brokers to take their own financial interests into account when working with clients.

"Taken together, these shortcomings mean the SEC's rule will still leave retail investors dangerously exposed to substantial losses caused by advice from hopelessly conflicted brokers," Ms. Maloney said.

The highest-ranking Republican on the panel backed the SEC proposal.

"The proposed regulation significantly raises the stand of care by formally establishing the customer's best interest as the overarching standard of care," said Rep. Bill Huizenga, R-Mich. "Consumers will be able to make more-informed decisions about the types of financial professionals which would be able to meet their needs, and allows investors greater choices and access to the products and services they require."

With Democrats in control of the subcommittee, the hearing was dominated by witnesses who questioned the SEC rule.

"Unless the commission is prepared to adopt substantial improvements to Reg BI ... it is likely to do more harm than good by misleading investors into expecting protections that the rule simply does not provide," Barbara Roper, director of investor protection at the Consumer Federation of America, told lawmakers.

Former SEC chairman Harvey Pitt was the only witness who defended the SEC measure. He praised current SEC chairman Jay Clayton for putting advice reform on the table — an issue that has long flummoxed the agency.

"In only two years, the commission has come forward with a very substantial, thoughtful proposal," said Mr. Pitt, chief executive of Kalorama Partners. "The proposed regulation should be seen as an initial step, not as a final step."

Ms. Roper said the measure should be improved by defining the term "best interest," requiring that brokers recommend the best available investment and by requiring that firms implement policies and procedures designed to prevent brokers from putting their interests ahead of their clients' interests, among other steps.

"There is a positive message here," Ms. Roper said in an interview. "It is fixable. There's still time."

Rep. Brad Sherman, D-Calif., asked witnesses whether the SEC proposal was better than the status quo. Everyone except Mr. Pitt answered "no."

"[Having] no rule is better than this rule," said Susan John, chairwoman of the Certified Financial Planner Board of Standards Inc. "The rule undercuts what existed before."

0
Comments

What do you think?

View comments

Most watched

Events

Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.

Events

Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

SEC sets June 5 date for vote on Regulation Best Interest

Commission adds new item to agenda: Interpretation of broker guidance that qualifies as advice

House passes SECURE retirement bill with massive bipartisan support

The measure allows small employers to band together to offer plans and raises the RMD age. Another provision eases use of annuities in 401(k)s, which critics say goes too far

10 IBDs with the most annuity revenue

Here are the independent broker-dealers that brought in the most annuity revenue last year.

DOL sets date to propose new fiduciary rule

The regulation, expected in December, likely will be contoured to the SEC's new advice standards.

LPL expanding platform to include employee brokers

The largest IBD in the country has agreed to buy a small broker-dealer in Florida to kick off the new effort.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print