SEC advice rule: Industry groups brace for debate
Trade groups are champing at the bit to have their say in response to the SEC hearing.
Financial services industry groups scrambled on Wednesday afternoon to get out ahead of and then respond to the SEC’s proposed advice rule, which is designed to lay the foundation for upgraded financial advice standards.
As the Securities and Exchange Commission voted 4-1 to propose an investment advice rule package that would revise standards of conduct for brokers and investment advisers, Barbara Roper, director of investor protection at the Consumer Federation of America, described the SEC’s proposal as a “modest improvement over the status quo, but not the clear standard we believe is needed.”
Specifically, she added, “the standard must clearly require brokers to recommend the best available investment option, based on reasonable assumptions and a careful review of the needs of the investor and the characteristics of the investments, or it should not be called a best interest standard.”
Ms. Roper, did however, find encouragement in the requirement to mitigate financial conflicts.
“While it falls short of the strict limits on conflicts in the DOL rule, it appears stronger than the meaningless disclosure-only approach to conflicts advocated by the industry,” she said. “We look forward to working with the Commission to turn this far-from-perfect proposal into a true best interest standard we can enthusiastically support.”
Meanwhile, Securities Industry and Financial Markets Association president Kenneth Bentsen released a statement approving of the process, but not necessarily the details.
“We are pleased that the SEC, as the preeminent markets regulator, has initiated the formal rulemaking process to create a heightened best interest standard for broker-dealers while also providing interpretive guidance on the investment adviser regime,” he said. “We look forward to learning the details of the proposal and sharing our views during the comment process.”
It was a similar sentiment from the chief executive of the Equity Dealers of America, which referenced the criticism of the Department of Labor’s attempts to impose a fiduciary standard on segments of the wealth management industry.
“We are pleased that the SEC, which is the appropriate regulatory agency to address this issue, is proposing a rule today,” said Chris Iacovella. “Our early read on the rule is that it takes significant steps to continue to promote and enhance investor trust and confidence in our markets. Our membership cares deeply about the issue and we look forward to engaging the Commission on the details of the proposal.”
The SEC hearing, which focused on best-interest rules, fiduciary duty and potential confusion among retail investors about the use of the adviser title, was described as encouraging by Dirk Kempthorne, president and chief executive of the American Council of Life Insurers.
“We are encouraged by the SEC proposal to implement a best interest standard of conduct that can be uniformly applied across all regulatory platforms — the states, FINRA, and the Department of Labor,” he said in a statement.
“ACLI strongly supports comments made by SEC Chairman Clayton at the meeting about the need for regulatory coordination,” he added.
Mr. Kempthorne said that the ACLI also supports “reasonable and appropriately tailored rules that require all sales professional to act in consumers’ best interest,” and that it “will continue contributing to state and federal efforts to develop consistent and uniform standards that truly work in consumers’ best interest.”
Dennis Kelleher, president and CEO of Better Markets, took a negative view of the SEC’s investment advice package.
“The SEC exists to protect investors and the law should unambiguously require investment professionals to act in the best interests of their customers who entrust them with their hard-earned money,” Mr. Kelleher said in a statement. ” The proposal today appears to fall well short of that standard, relying too heavily on disclosure.”
Still, he said, “the devil is in the details.”
“We look forward to reading the proposal with care when it becomes available and fully engaging in the process with comments and advocacy aimed at producing the strongest possible final rule,” Mr. Kelleher said.
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