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SEC Meets to Vote on Fiduciary Proposal

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As the Securities and Exchange Commission was set to vote Wednesday afternoon on its standard of conduct, aka fiduciary, rulemakings for broker-dealers and investment advisors, industry officials were busy weighing in with their views on the plan.

The agency announced last week its plan to hold an open meeting to discuss the three-pronged approach, which includes two rules and “an interpretation,” as follows:

  • new and amended rules and forms to require RIAs and broker-dealers to provide a brief disclosure documents to retail investors;
  • a rule, to be called Regulation Best-Interest, to establish a standard of conduct for broker-dealers;
  • and an SEC interpretation of the standard of conduct for investment advisors.

The lengthier open meeting agenda released Wednesday also states that the agency will consider whether to propose new restrictions on the use of the term “adviser” or “advisor” by broker-dealers in specified circumstances.

A fact sheet issued by the agency before the meeting states that a broker-dealer making a recommendation to a retail customer would have a duty to act in the “best interest of the retail client.”

Three obligations would be required of the broker-dealer to satisfy this duty:

  • Disclosure. Disclose to the retail customer the key facts about the relationship, including material conflicts of interest;
  • Care. Exercise reasonable due diligence, care, skill and prudence to understand the product and that it’s in the best interest of the retail customer;
  • Conflict of interest. BD would be required to establish, maintain and enforce policies and procedures reasonably designed to identify and then at a minimum to disclose and mitigate and eliminate material conflicts on interest arising from financial incentives.

SEC Chairman Jay Clayton said in his opening remarks at the meeting that the “provisions of this package interlock with each other,” and welcomed robust input from “fellow regulators and market participants.”

The Financial Planning Coalition comprising the Certified Financial Planner Board of Standards, Inc., the Financial Planning Association, and the National Association of Personal Financial Advisors said in a joint statement before the meeting that “Today, the SEC will finally have a meeting that should have happened nearly eight years ago when Congress explicitly authorized the SEC to enact a fiduciary rule under the Dodd-Frank Act.”

The Coalition expects “to hear the commissioners express support for this important consumer protection and that the proposed rule will have meaningful language providing American investors a fiduciary standard of care.”

Andrew Stoltmann, president of the Public Investors Arbitration Bar Association, worried, however, that the SEC appears to be “advocating for a disclosure-based standard and not a fiduciary duty-based standard.”

He added: “Unfortunately, this will provide few protections for investors.”

A disclosure-based standard, Stoltmann said, “is a far watered down version of the Department of Labor’s [fiduciary] standard passed in 2016. Investors are confused already and a disclosure that nobody reads likely won’t be the least bit useful.”

Barbara Roper, director of investor protection for the Consumer Federation of America, added that “depending on how [the SEC proposal] is drafted, the proposal could require advice that is in the best interests of savers and retirees, or it could preserve the ability of financial firms to profit unfairly at their customers’ expense. Tens of billions of dollars a year in Americans’ hard-earned savings are at stake.”

It was unclear just before the meeting whether the proposal — which one industry official attendee said is 1,000 pages long — would be released Wednesday or soon thereafter.

The proposal, if approved by the Commission, will be released for a 90-day public comment period.


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