David Bellaire, executive vice president and general counsel, Financial Services Institute:
“While it is not perfect,” the SEC’s proposed rulemaking package “provides a clear standard of care for financial professionals, including guidelines for managing conflicts of interest, while preserving investor access to the broad range of products and services available in the broker-dealer model,” Bellaire told the SEC. The plan’s goal of restricting the use of the terms “adviser” or “advisor” to RIAs and their supervised persons is concerning in that “restricting the use of certain titles may lead bad actors to simply adopt other similarly misleading titles rather than solving the problem.”
Andrew Stoltmann, Chicago arbitration attorney and president, Public Investors Arbitration Bar Association:
“We were a strong advocate” of the Labor Department's fiduciary rule, seeing it as “an important step in the right direction.” But Reg BI, if it’s going to “protect retirement savers,” will need “major surgery” to fix. “Failing to make these additions and modifications” — as outlined in PIABA’s just-released report — “will further perpetuate the status quo of allowing Wall Street brokerage firms and brokers to peddle high-cost, conflict-laden investments and investment strategies.”
Barbara Roper, director of investor protection; Micah Hauptman, financial services counsel, Consumer Federation of America:
With the advice proposal, the SEC has, “at long last, turned its attention” to strengthening protections for investors and released “a broad, albeit deeply flawed, proposal.” The consumer group has “fundamental concerns” about the commission’s approach, chief among them that the group believes the SEC is on “shaky legal ground in proposing different standards for brokers and advisers” given repeated statements in the proposal implying that advice giving is the primary service of both.
Ken Bentsen, president and CEO, Securities Industry and Financial Markets Association:
Reg BI “significantly strengthens the standard of conduct applicable to broker-dealers by imposing additional investor protections that exceed” those of the Financial Industry Regulatory Authority’s suitability rule. However, the definition of “’retail customer’ should be modified to capture those individuals who actually function as retail investors.” Also, Reg BI’s interpretation of “material conflicts of interest” should be refined to elicit meaningful disclosures, as it could result “in excessive disclosure that would overwhelm investors.” (Photo: Bloomberg)
Massachusetts Secretary of State William Galvin:
The SEC is proposing “a weak and unclear standard which, unless modified, would force Massachusetts to adopt its own rules to protect investors and require broker-dealers to provide non-conflicted advice in the best interest of their clients,” said Galvin, the state's top securities regulator. He added that Reg BI “is no more than ‘fiduciary light,’ which will not protect the consumer, but will give industry plenty of cover from potential lawsuits.” Plus, he said, the SEC’s plan “also fails to state that sales contests and sales quotas are fundamentally inconsistent with the best interest standard.”
Michael Kitces, Nerd’s Eye View Blog/Pinnacle Advisory Group:
The SEC’s effort to “lift the standards of advice” for brokers through Reg BI is laudable, but applying Reg BI to the “’pay as you go’ episodic or transaction advice of brokers inappropriately redefines the Investment Advisers Act of 1940 itself … which knowingly subjected broker-dealers to a lower standard than that of investment advisers specifically because brokers are not supposed to be in a the business of advice (ongoing or episodic) in the first place, and were only permitted to provide advice to the extent that advice was/is ‘solely incidental’ to the sale of brokerage products and services,” Kitces told the SEC.
Karen Barr, president and CEO, Investment Adviser Association:
The SEC’s advice standard package could become “a landmark” rulemaking, but IAA has “real concerns about whether these rule proposals as written will achieve their intended goals, or whether they will actually increase investor confusion.” Case in point: the potential gaps in retail investor protection arising from “the narrow scope and application” of Reg BI. The proposed rule “would only apply only in the limited context of, and at the time of, a specific investment recommendation,” she said. “All advisory activities that broker-dealers agree to provide a retail client, including ongoing monitoring for purposes of recommending changes in investments, should be covered by either Reg BI or the fiduciary standard.”
Ken Fisher, Fisher Investments:
The agency’s proposed Form CRS “gives the impression that the key, understandable distinction is that brokers give one-time recommendations and investment advisers give advice on a regular or ongoing basis,” his comment letter states. The difference “may be true generally,” but “it obscures the more important fact that brokers are, at their core, securities distributors. They are selling investment products, usually for a commission.” Brokers should not be allowed to call themselves "advisors," he said.
(Related: ‘O’ No! Ken Fisher Tells SEC to Ban Use of ‘Advisor’)
The deadline for comments on the Securities and Exchange Commission’s sweeping advice standards package for brokers and advisors ended Tuesday, and at midday, comments were still streaming into the agency.
Lawmakers as well as SEC commissioners themselves have weighed in on the more than 1,000-page standard of conduct rule package approved by the securities regulator on April 18.
Consumer groups had urged the agency to extend the comment deadline for the sweeping Regulation Best Interest and the Customer Relationship Summary, or Form CRS, to allow enough time to test the new disclosures on investors and report the results, but to no avail.
SEC Chairman Jay Clayton told senators in early June that while the agency would take “at least the 90 days” for comments on the three-pronged advice standards package, until Aug. 7, he was “not going to take forever. This [fiduciary] issue has been out there a long time, and I think it’s time to bring a focal point for the many regulators in this space.”
Industry officials, advisors as well as consumer groups have offered comments ranging from support to ways the proposal must change, to how portions of the proposed rule need major surgery.
Check out the gallery above to see some how some of the industry’s heavy hitters are weighing in on the SEC’s three-pronged plan. The full comments are linked to the commenters’ names when the full text is available.