Last week, the Securities and Exchange Commission released a 1,000-page set of rule proposals intended to limit conflicted advice given by investment professionals for both non-retirement and retirement accounts. The move by the SEC to release its own rule comes on the heels of last month’s Fifth Circuit Court of Appeals ruling to vacate the Department of Labor’s fiduciary rule – a more stringent regulation that only pertains to retirement accounts.
The DI Wire asked Alternative Direct Investment Securities Association CEO John Harrison his thoughts on the SEC’s best-interest proposal, which is currently open for a 90-day public comment period.
Is the SEC’s proposed regulation necessary?
We do want everyone to understand that appropriate and meaningful regulation is a needed function of government, and that we are certainly in favor of the SEC addressing this issue in a comprehensive way instead of the piecemeal ERISA approach which was underway.
We are encouraged that the SEC’s approach takes into consideration the investors’ best interest without unduly restricting a financial professional’s choice of business model. The DOL’s approach would have limited access to advice as an unintended consequence; we do not believe that is the intent or effect with this new proposal. Of course, we will have to study it thoroughly before commenting on specifics.
Is the rule overreaching or does it not go far enough?
Whether any regulation is overreaching is subjective, and the devil truly in the details. That said, upon initial review it does appear that this proposed set of rules strikes a somewhat reasonable balance by addressing both consumer protection and consumer confusion issues, while simultaneously enabling the securities industry to continue to offer both brokerage and advisory account options – – choices consumers have made clear they want.
The proposal would in part create a best interest standard applicable to broker-dealers and require them to put their clients’ interests ahead of their own. It would also require brokers to document the relationship through the use of written policies and procedures designed to disclose and, at the very least, mitigate conflicts of interest.
That’s a step forward from the current standard and more than likely a good step if the parameters of what is required by that standard are well defined and capable of use in everyday contexts.
Are there points that should be included/excluded?
We have a great group of dedicated volunteers in ADISA’s legislative & regulatory committee, headed up by Catherine Bowman (Bowman Law), with a board-appointed lead on this topic in John Grady (DLA Piper). Their group will be doing a review as ADISA heads up a comment letter to the SEC.
Also, SIFMA has an active coalition on this topic which we sit on, and I know many organizations will be reviewing this thoroughly. That’s really the level where we’ll analyze what’s missing and what should be amended or even left out.
What are your thoughts on the advisor/adviser title restriction?
It’s good that the SEC is addressing this, and we want to have clear definitions and standards that will truly benefit investors — sometimes in these language debates, it’s the end-user who is thought of last. Giving advice is different from recommending products, programs and strategies, so that is one big difference which has to be parsed out. What if a provider is sometimes doing one or the other? That seems to be the key issue we are trying to solve with this.
Again, the SEC’s proposal represents a thoughtful start; now the work begins to determine how this will actually apply. Stay tuned.