SIFMA Statement On The SEC’s Final Regulation Best Interest Rule

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Thursday, June 06, 2019    /   08:47PM   /   By SIFMA    / Header Image Credit: Philly.com

 

SIFMA released the following statement today regarding the final version of Regulation Best Interest, approved by the Securities and Exchange Commission (SEC) today:

 

“As written, the SEC’s Regulation Best Interest rule will impose a materially heightened standard of conduct for broker-dealers when serving retail clients. While principles-based, the rule is specific with respect to the duty and obligations brokers owe to their clients, and what steps they must take to comply, including the obligation to eliminate, or disclose and mitigate, certain conflicts of interest. Not even the so-called fiduciary standard under the Investment Advisers Act includes the obligation to eliminate or mitigate conflicts. It is undeniable that this rule will directly enhance investor protection and contribute to increased professionalism among financial service providers,” stated SIFMA President and CEO Kenneth E. Bentsen, Jr.  “Compliance with the rule will not be easy for the industry. Firms will need to make substantial changes. The costs to implement will no doubt be significant, but, we believe, worthwhile to uniformly enhance investor protection to the level investors should and do expect, while preserving investor choice and access to investment advice.”

 

Our industry supports the key investor protection elements of the rule:

  • Recommendations must be in the retail customer’s “best interest,” meaning that broker-dealers cannot put their interests ahead of the interests of the customer. Brokers will be held to that standard under the robust examination and supervision regimes of the SEC and FINRA, as well as FINRA’s arbitration forum.
  • Broker-dealers must either eliminate, or disclose and mitigate, material conflicts of interest, an even higher standard than the one that applies today to investment advisers.
  • Requires broker-dealers to exercise reasonable “diligence, care and skill” in making recommendations. These principles are the core of a broker-dealer’s “Care Obligation” in Reg BI. The totality of these new, stringent and elevated regulatory requirements will require brokerage firms to dramatically enhance their supervisory and compliance regimes to the benefit of retail investors.
  • Preserves access and choice for investors while providing significantly enhanced protections in areas that the now-defunct DOL Fiduciary Rulesought to address. The rule includes all of the protections of the former DOL rule, including the duty of loyalty, duty of care and risk mitigation elements.  But it is even more protective than the DOL rule because it applies to all retail brokerage accounts, not just qualified retirement accounts or IRA’s, and is backed by the accountability mechanism of SEC and FINRA examination and enforcement.

 


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Related Materials

·         Statement At The Open Meeting On Regulation Best Interest, The Interpretation Of The Standard Of Conduct For Investment Advisers, The Form CRS Relationship Summary, And The Interpretation Of “Solely Incidental”, SEC Commissioner Elad L. Roisman, June 5, 2019

 

 

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