SEC Must Clarify Advice Standards or the Courts Will: AARP

As the Securities and Exchange Commission gears up to hold its first town hall meeting in Atlanta on Wednesday to get feedback on its standard of conduct proposals, AARP argues that any final rule issued by the securities regulator must include two “important” changes: “clearly define the standard of conduct for investment professionals as a ‘fiduciary standard,’ and provide investors with unambiguous, effective disclosure forms.”

While AARP “appreciates that the SEC is trying to impose a higher standard than suitability” for brokers under its Regulation Best Interest, the securities regulator “does not impose a fiduciary standard [on brokers] and does not define what best-interest means,” said David Certner, AARP’s legislative counsel, on a Tuesday morning call with reporters.

Certner — who will testify at the SEC’s Investor Advisory Committee meeting on Thursday, which is also being held in Atlanta — stated on the call with reporters that as it stands now, it’s “not clear what standard it is they [the SEC] is trying to adopt. It’s difficult to understand what they mean by these terms. Best-interest is a fiduciary type of standard,” Certner said, but if the term is left “so vague,” no one — practitioners or investors — will understand what it means.

“We need a lot more clarity in what the standard means,” he continued. “It has to be clear[er] when people are acting in the ‘best interest’ and when they are not.”

Vague standards, he added, opens “the door to litigation, and the standard will be set by the lawsuits that will be brought.”