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Regulation and Compliance > Federal Regulation > SEC

All Eyes on Gensler to Define 'Best Interest' in SEC Rule

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What You Need to Know

  • The SEC didn't define best interest when it enacted Reg BI.
  • Defining best interest would place it at a higher standing, Aikin says.
  • Labor said in mid-June that it plans to issue a proposed rulemaking to update the definition of fiduciary under ERISA.

Chairman Gary Gensler of the Securities and Exchange Commission may likely define “best interest,” according to Blaine Aikin, founder and principal of Fiduciary Insights, a Broadridge company.

The SEC did not do so when it enacted Regulation Best Interest in 2019.

“I think there’s an appetite for the Biden administration” to define best interest “and place it at a higher level of standing,” Aikin said on a recent Broadridge webcast. “We’ve had certain calls from many different audiences: ‘Wouldn’t it have been better if the SEC had actually defined best interest?’”

Gensler told lawmakers in early May that while the agency plans to “vigorously get the most” out of Reg BI, the agency will “constantly evaluate” how the rule is serving investors and it could be modified.

Aikin added that he believes there’s “huge collaboration” going on now between the Labor Department and the SEC regarding Reg BI and Labor’s upcoming new fiduciary rule.

The SEC’s best-interest rule “has introduced these fiduciary principles and yet we have this prohibited transaction on the DOL side that brings [together] the best interest, the impartial conduct standards and fiduciary responsibility,” Aikin said. “So I think those things start to come into play.”

Labor said in mid-June that it plans to issue a proposed rulemaking to update the definition of “fiduciary,” according to its regulatory flexibility agenda filed with the Office of Management and Budget’s Office of Information and Regulatory Affairs.

Phyllis Borzi, former head of Labor’s Employee Benefits Securities Administration under the Obama administration, told ThinkAdvisor Monday in an email that Labor is likely “continuing to work on its proposal to revise the fiduciary definition (i.e., redoing the 5-part test [on who’s a fiduciary]), but I suspect that right now, a higher priority is publishing further guidance on [its fiduciary] PTE 2020-02 and changes to the other exemptions.”

According to Labor, its planned rulemaking would amend the regulatory definition of the term fiduciary “to more appropriately define when persons who render investment advice for a fee to employee benefit plans and IRAs are fiduciaries within the meaning of section 3(21) of ERISA and section 4975(e)(3) of the Internal Revenue Code.”


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