The Securities and Exchange Commission passed by a 3-1 vote Wednesday its controversial Regulation Best Interest, which SEC Chairman Jay Clayton said would “substantially enhance the broker-dealer standard of conduct beyond existing suitability obligations.”
The agency also passed by a 3-1 vote the three other prongs of the advice-standards package — the Form CRS Relationship Summary, the Standard of Conduct for Investment Advisers, and a new Interpretation of “Solely Incidental.”
SEC Commissioner Robert Jackson, a Democrat, dissented, stating that his hope was that the rules the SEC announced Wednesday would leave “no doubt that investors come first. Sadly, I cannot say that. Today’s rules maintain a muddled standard. Today’s rules simply do not require that investors’ interests come first.”
Jackson stated that he couldn’t vote for any of the four prongs of the plan put forth Wednesday. Neither Reg BI nor the advisor recommendations “requires Wall Street to put investors’ interest first,” Jackson said.
In his opening remarks, Clayton stated that “the overriding issue we address today — the obligations of financial professionals when they provide investment advice and services to retail customers — has been at the heart of our mission for those 85 years. This is a vast, multifaceted, complex and critically important facet of our economy and our society. It directly affects 43 million American households.
Today, Clayton said, “thanks to the career professionals here at the commission — and true to our mission — we elevate, enhance and clarify these obligations in a comprehensive manner.”
He argued that the standard of conduct action “is long overdue. The fact that it is overdue does not make it easier. I believe the delay has made it more difficult as many interested parties have developed strident and divergent views on the state of the market, as well as current law and regulation, and what should be done to better serve the interests of our Main Street investors.”
A complicating factor, Clayton continued, is “that we regulate two types of financial professionals that play important roles in this vast market — broker-dealers and investment advisers — but do so in significantly different ways and under different regulatory regimes.”
Reg BI, Clayton said, “will substantially enhance the broker-dealer standard of conduct beyond existing suitability obligations, requiring broker-dealers, among other things, to act in the best interest of their retail customers when making a recommendation, including not placing their financial or other interests ahead of the interests of the retail customer.”
Reg BI, he said, “draws from key fiduciary principles and cannot be satisfied through disclosure alone.”