Best Interest

Hester Peirce: What’s in a Name? Regulation Best Interest v. Fiduciary

Commissioner Peirce:

“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.

New York issues final regulation placing “best interest standard” on the sale of life insurance products and annuities

As we previously noted, 2018 promises to be an eventful year at the state level for the regulation of the sale of life insurance and annuity products.  Today, New York issued its much anticipated final regulation that imposes a “best interest” standard.  The regulation requires insurers to, among other things, put in place policies and procedures to ensure that agents and brokers put the interests of consumers ahead of their own when making a recommendation regarding a life insurance product or annuity.  The New York rule comes out before the National Association of Insurance Commissioners (NAIC) holds its August 4, 2018 meeting to address revisions to its existing annuity suitability rule, which could impact the laws of numerous states.  Unlike New York’s new regulation, NAIC’s existing suitability regulation and proposed “best interest” regulation to be addressed at the August 4, 2018 meeting apply only to the sale of annuity products.  Stay tuned for our forthcoming analysis of the New York regulation, its implications for the life insurance/annuity industry, and its potential impact on the discussions at the upcoming NAIC meeting.