For eight years now, the financial advice industry has been grappling alongside regulators to determine what it means to work in the “best interest” of clients and customers. As CEO of the leading alternative investments trade association, I have been intimately involved in this process, meeting with policymakers to help shape effective and informed legislation, listening to retail investors to understand what they truly need — and want — and working with financial advisors, broker-dealers and capital providers to guide our industry down the path of the next decade of customer-centric growth. Now, nearly a decade into this effort, and with the Securities and Exchange Commission in the lead, we are moving closer to finding a workable “best-interest” standard for investors, regulators and financial advisors. But the path forward for the industry must blend this legal standard with a culture that empowers individual investors.
As the SEC closes its comment period for Regulation Best Interest on Tuesday, it’s important to consider why best interest has proven so hard to define.
The SEC has done an admirable job proposing enhancements to the standards of conduct for investment advisers and broker-dealers. The Institute for Portfolio Alternatives will be supporting the commission’s proposed rule, which puts the interest of the retail investors front and center. We welcome a regulatory approach that builds upon and strengthens the existing suitability obligations imposed by the Financial Industry Regulatory Authority. However, the success of the financial advice industry, and any legislative or regulatory initiative, will be measured by our shared ability to establish a trusted and honest relationship with retail investors.