The House of Representatives’ vote on Wednesday approving an amendment to stop the Securities and Exchange Commission from enforcing Regulation Best Interest is purely “partisan” politics, argues Ron Kruszewski, chair-CEO of Stifel Financial Corp., in an interview with ThinkAdvisor.
Reg BI’s “principles of fiduciary care” for the brokerage model “dramatically enhance” The Financial Industry Regulatory Authority’s suitability standard, raising the standard of conduct for brokerage accounts “as high as and in many cases higher than” the standard for RIAs, he maintains.
Stifel offers both brokerage and advisory models. “I’m not picking sides,” Kruszewski stresses. “I’m an advocate for client choice.”
Stifel manages more than $100 billion in advisory accounts, notes Kruszewski, who joined the firm as CEO in 1997. The public company’s total assets under management were $270 billion as of Dec. 31, 2018, according to Stifel’s “Fact Sheet for 2019.”
“When people say that brokers don’t act in the consumer’s best interest, while people under the 1940 [Investment Advisers] Act do, I think that’s a completely inaccurate portrayal of the market,” Kruszewski tells ThinkAdvisor.
He is chair of the American Securities Association (ASA) and serves on the board of the Securities Industry and Financial Markets Association (SIFMA).
In an Aug. 7, 2018, letter to SEC chair Jay Clayton, Kruszewski recommended a standard of care “essentially uniform across brokerage and advisory models.” That’s what Reg BI provides, plus more, he says.
ThinkAdvisor yesterday interviewed Kruszewski, on the phone from Stifel headquarters in St. Louis. This year the chief executive was appointed to serve a sixth consecutive one-year term on the Federal Advisory Council of the St. Louis Federal Reserve Board of Directors.
Here are excerpts from our interview:
THINKADVISOR: What’s your reaction to the full House approval of Maxine Waters’ amendment to block the SEC from enforcing Regulation BI?
RON KRUSZEWSKI: I view this as political. I feel this has become a partisan issue. I personally object to blocking the orderly implementation of a regulation which would provide strong investor consumer protection for almost 50 million households.
How does Reg BI do that?
I want to be clear that I’m not an advocate that favors one business over another; that is, brokerage over advisory. Stifel has accounts under all models. I’m an advocate for client choice and believe that all models should have a duty of loyalty and a duty of care. I also believe in disclosure.
What’s your assessment of Reg BI as adopted on June 5?
It’s an excellent rule that enhances investor protection while maintaining client choice and access to advice. Regulation BI is the most comprehensive enhancement of the standard-of- conduct rule governing broker-dealers, frankly, since the passage of the Securities [Exchange] Act of 1934.
How does Reg BI compare with FINRA’s suitability standard?
It dramatically and undeniably exceeds the previous suitability standard under FINRA. It encompasses investor protection while maintaining the brokerage model.
How does Reg BI help RIAs, BDs, independent FAs and wirehouse brokers?
First of all, Reg BI doesn’t apply to RIAs. They work under the Investment Advisers Act. Reg BI [addresses] accounts under the 1934 Act. But Reg BI benefits all because it raises the conduct standard for brokerage accounts so they’re as high as, and in many cases higher than, the standard for RIAs.