FSI UPDATE
SEC Regulation:
Best Interest an Important
for Our Industry
Step
The agency’s approach allows firms
to comply with new guidelines while
tailoring their practices to their own
businesses and clients
The Securities and Exchange
Commission’s introduction in May of
a proposed best-interest standard of
care for all advisors — including those
affiliated with broker-dealers and RIAs —
was a watershed moment for the
financial advice profession.
The Financial Services Institute has
supported a uniform best-interest
standard that would be crafted and
enforced by the SEC as the appropriate
jurisdictional agency since 2009, before
Dodd-Frank became law. After years
spent debating, preparing for and
successfully litigating the Department
of Labor’s unworkable fiduciary rule,
the SEC’s leadership on this issue is a
welcome development, one that places
the key decisions on our industry’s
regulatory framework in the hands of
the agency that is best qualified to
address them.
We believe the proposed best-interest
framework (known as Regulation Best
Interest, or Reg BI) represents a clear
and important step in the right direction,
and we were pleased to submit a
comment letter in September outlining
our support along with suggestions for
improving the proposed rule.
33 The STAR | NOVEMBER 2018
We applaud the SEC’s approach in drafting Reg BI, which focuses on
a common-sense application of certain core principles to the client
relationship. This approach wisely enables firms to comply with the new
guidelines while tailoring their practices to their own businesses and clients,
thereby protecting access to objective professional financial advice for
Main Street American clients.
Under the SEC’s proposal, broker-dealers would disclose key facts about
the customer relationship, including material conflicts of interest; exercise
reasonable diligence, care and skill to ensure that recommended products
are in the customer’s best interest; and establish and enforce
practices to identify, disclose and mitigate or eliminate conflicts of interest.
By building on existing suitability standards, the SEC’s proposal would
strengthen and clarify the requirement that advisors work in the best
interest of clients without creating a new and potentially unworkable
regulatory framework.
We further commend the SEC for incorporating measures to reduce
conflicts of interest that the vast majority of stakeholders in our industry
can support. These include eliminating sales contests based on product
sales (although we believe that product-agnostic performance awards
should be permitted).
We also support the SEC’s approach to defining the scope
and nature of the client relationship through a simplified,
straightforward customer relationship statement that
would outline potential conflicts, compensation