SEC Receives an Earful on ‘Reg BI’

August 16, 2018

SEC Receives an Earful on ‘Reg BI’

August 15, 2018 | Beth Glavosek | Blue Vault

Ever since the long-debated Department of Labor (DOL) Fiduciary Rule faded away earlier this year, regulators have attempted to keep the spirit of the ruling alive by implementing a substitute rule.
In April, the Securities & Exchange Commission (SEC) introduced its Regulation Best Interest– or Reg BI – in an effort to establish a standard of conduct for broker-dealers and associated persons when they make recommendations to retail customers involving securities. The proposed standard of conduct is to act in the ‘best interest’ of the retail customer and not place the interests of the broker-dealer ahead of the interest of the retail customer.
As reported in Investment News, the proposal includes a best-interest standard for brokersnew disclosure requirements for brokers and investment advisers and financial adviser title reform; and an interpretation of the fiduciary standard that currently applies to investment advisers.
The SEC opened up a comment period to receive public feedback, and this period recently ended on August 7. Not surprisingly, such a regulation has been met with continued skepticism and resistance from those in the financial community who believe that it does more to confuse than clarify.
What are the controversies?
The following are among the proposed ruling’s controversial aspects:

Attempts to control ‘titles’ in the advisory relationship. While some responders support the SEC’s intent of helping retail investors better understand financial professional roles and services, they also believe that restrictions on the use of titles could create unintended consequences. For example, restricting the use of the term ‘advisor’ could lead to a proliferation of other titles that add to customer confusion.
 Reliance on disclosure to protect investors. As one advisor points out, clients are already not reading complicated prospectuses. So, relying on them to read complicated disclosure documents is probably not the answer to helping them better understand the terms of their financial advice.
Suitability and client choice. Opponents believe that the current proposal doesn’t do much to increase real investor protection, yet, like the old DOL ruling, it limits some advisors’ ability to provide a complete array of products and services. As one advisor puts it, “Diversity in product, service and compensation are good for the industry and ultimately for the client when used appropriately.”


A number of financial industry leaders responded to the call for comments, and their feedback can be read here or in a recent article published by Financial Planning.

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John E. Moriarty, ChFC
December 2015
February 3, 2016

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