The same day seven states announced that they were suing the Securities and Exchange Commission over its Regulation Best Interest, XY Planning Network also filed a lawsuit challenging broker-dealers’ ability to deliver comprehensive financial planning services under the rule.
In its suit, filed Monday in the Southern District of New York, XYPN argues that under the SEC’s so-called “best interest” rule, “a broker-dealer is permitted to take into account its own personal interests in providing recommendations and advice to investors on how to invest their life savings. This new rule means that broker-dealers may maintain harmful conflicts of interests while being able to market themselves as trusted advisers acting in their client’s best interests.”
The rule “thus circumvents a key goal of Dodd-Frank — leveling the playing field — and increases investor confusion.”
“We think the court would have to vacate Regulation Best Interest or, alternatively, if the SEC is willing to modify the rule and state that financial planning advice is investment advice that is not solely incidental, that would put Reg BI back in compliance” with Dodd-Frank, Michael Kitces, XYPN’s co-founder, told ThinkAdvisor in a Wednesday interview.
With Reg BI, Kitces said, “fiduciary competitiveness is being damaged.”
XYPN co-founder Alan Moore added in a statement that with Reg BI, “the SEC is permitting brokers and dual registrants to provide financial planning advice, without being subject to full RIA registration and/or without being subjected to the fiduciary duty that Congress prescribed for such advice.”