Financial Services Institute defends Reg BI under new administration

The Financial Services Institute has long been on the offensive to get Regulation Best Interest put in place as the broker investment advice standard.

This year, it’s going on defense to protect it.

Fiduciary advocates are pressing the Securities and Exchange Commission to overhaul the measure, arguing that it offers no real increase in investor protection from the previous suitability standard that governed brokers. They are hopeful that a Democratic-majority SEC in the Biden administration will agree with them.

But, industry proponents of Reg BI are gearing up to convince the SEC to keep Reg BI intact.

“Our message to regulators and the incoming administration is pretty simple that we think Reg BI works,” Robin Traxler, FSI senior vice president for policy and deputy general counsel, told reporters on Tuesday during the rollout of FSI's 2021 agenda. “It’s a good rule, and it’s a major step forward for industry in providing a strong, common standard of care for advisers and clients across the country.”

 Traxler said FSI has seen “strong, positive indications that it is doing what it’s intended to do, which is fostering conversations between advisers and their clients on their relationships and mutual responsibilities while at the same time significantly bolstering disclosure and transparency.”

Reg BI went into force in June. FSI plans to tell Gary Gensler, a former regulator and Wall Street executive who has been nominated by President Joe Biden to chair the SEC, that financial firms are complying with the rule, and it shouldn’t be tweaked.

“We do look forward to working with Mr. Gensler and having a productive dialogue with his team in the coming weeks and making the case as to why Reg BI should continue to be the law of the land,” Traxler said.

The organization represents independent broker-dealers and financial advisers. FSI chief executive Dale Brown said Reg BI “is workable” for his members and investors. “It doesn’t drive up costs, unnecessarily increase complexity, cause confusion,” Brown said. “The losers when that happens are small investors who lose access to affordable, objective advice.”

Fiduciary and investor advocates counter that Reg BI is too weak to curb broker conflicts of interest and that the industry backs it because it demands little from brokers in changing how they do business.

Investment advice reform is also playing out at the state level. Massachusetts implemented its fiduciary rule in September, while New Jersey and Nevada are working on similar regulations.

David Bellaire, FSI executive vice president and general counsel, said the group opposes a “patchwork quilt” of investment-advice regulations across states. But he added that FSI was able to work with Massachusetts regulators to modify its fiduciary rule.

“As a result, Massachusetts’ fiduciary rule was significantly improved,” Bellaire said. FSI “is keeping a close eye on Massachusetts enforcement efforts going forward. But we were pleased with the changes that were made there.”

Other states are watching what happens in Massachusetts.

“We may see some more activity in the states once Massachusetts has more time to implement their rule,” Traxler said.

Policy advocacy is at the heart of FSI’s mission, Brown said. Last year, the organization’s revenue topped $10 million. “That’s an indication that our members believe we’re working on the right issues, the issues that matter to them and we’re working hard every day to get the results they need,” Brown said.