The Securities and Exchange Commission is reviewing more than 6,000 comment letters, feedback from four investor roundtables and the results of third-party investor testing before deciding whether any changes to its best-interest proposal for broker-dealers are warranted.
“We are in the process of going through comments to see what changes if any we should be recommending,” Dalia Blass, director of the agency’s Division of Investment Management, said at a hearing Wednesday of the House Committee on Financial Services. That division together with the Division of Trading and Markets developed the best-interest proposal to address conflicts of interest by broker-dealers serving retail investors.
Blass did not offer any timeframe for when SEC staff would decide whether to recommend changes to the current best-interest proposal nor was she asked about that by committee members at the hearing.
Blass explained that the proposal is “tailored to preserve choice for retail investors,” specifically the choice to use brokers for commission-based accounts, whose numbers declined after the fiduciary rule developed by the Labor Department for retirement accounts took effect. (It was subsequently invalidated by a federal appeals court in June.)
The proposal would require brokers to make recommendations in the “best interest” of retail customers, but doesn’t define the term. It would require brokers to disclose certain conflicts of interest to clients, such as bonuses received for selling some products, but would not disallow those sales.
In addition, violations of the rule would be treated like violations of the current suitability rule covering broker-dealers; they would be decided by arbitration, not by potential class-action suits, which would have been allowed under the now-defunct Labor fiduciary rule.