The Securities and Exchange Commission’s standard of conduct proposal raises brokers’ advice obligations and changes the way brokers are allowed to operate today, the agency’s chairman, Jay Clayton, said Wednesday.
Responding to a question from an attendee during the agency’s first town hall, dubbed “Investing in America, the SEC Comes to You,” held at Georgia State University College of Law in Atlanta, Clayton offered the following example of how brokers’ behaviors will change under the agency’s proposed Regulation Best Interest for brokers:
“In suitability, if you come up with two investments that are suitable for your client, there are people who will argue that you’re allowed to look at which investment makes you, the broker, more money and put the client into that investment,” Clayton relayed.
“Under our new standard, you [the broker] will not be allowed to do that. You cannot put your interests ahead of your clients’ interest,” he continued, adding that the agency is “going to add to that. This is a proposal…we all have views, we want your views.”
The securities regulator, under its conduct standard for brokers, is “going to require policies and procedures so that the exercise the broker-dealer goes through to get to that place, where they’re going to make a recommendation, also reflects a duty of care that is enhanced,” Clayton said.
Clayton also told town hall attendees that the agency is “looking at our private placement rules. They can use a sprucing up.”
Noting that the commission is a government agency with limited resources, Clayton added that “We all recognize that the private placement space can benefit from technology without adversely affecting investor protection.”
When choosing a financial professional, Clayton also told attendees to ensure the broker or advisor is registered—with the SEC or the state.