Tuesday marks the close of a public comment period for the Securities and Exchange Commission’s Regulation Best Interest, a recasting of the politically imploded fiduciary standards crafted during the Obama administration by the Department of Labor. Ahead of the Aug. 7 deadline, proponents, opponents, and the not-entirely convinced weighed in with nearly equal parts praise and concern.
“In comparing the proposed Regulation Best Interest standard as well as a broker-dealer’s other requirements under the securities laws to an adviser’s fiduciary duty as described in the proposed interpretive release, only two differences stand out. First, an adviser generally has an ongoing duty to monitor over the course of its relationship with its client, while a broker-dealer generally does not. Second, a broker-dealer must either mitigate or eliminate any material financial conflict of interest it may have with its client. An adviser is required only to disclose such a conflict. Rhetoric aside, arguably proposed Regulation Best Interest would subject broker-dealers to an even more stringent standard than the fiduciary standard outlined in the Commission’s proposed interpretation.
The Commission acknowledged concerns that the imposition of a new higher standard of conduct on broker-dealers could result in retail customers losing access to advice they receive through recommendations from broker-dealers, and customers that do not have the option of moving to fee-based accounts would in effect be unable to obtain investment assistance. At a minimum, their costs of obtaining such assistance might rise markedly. Although we tried to be cognizant of these access concerns, given the relative balance of the two standards, I fear that more and more broker-dealers will decide to become advisers that offer only fee-based accounts resulting in many Americans being shut out from receiving any investment advice.”
Her full speech can be found here.
The class action suit claimed the fund managers failed to uphold their fiduciary duties by reducing record-keeping costs and by allowing two supposedly underperforming funds to remain as investment options.
NAIC members will be meeting on Saturday to discuss whether to adopt a suitability-plus or best interest model rule for the sale of annuities. Bill Mandia weighs in in the context of the recently finalized New York rule.
Axel Weber makes salient points to the FT on the need for the ‘plumbing’ of ESG to improve, particularly greater product availability across asset classes (e.g., high yield debt and alternatives), more meaningful benchmarks (to help measure fiduciary duty compliance) and simplification of terminology.