SEC Releases Scaled-Down Version of DOL Fiduciary Rule

Predating the reworked and much-anticipated Trump admin fiduciary rule expected in December, the Securities and Exchange Commission (SEC) has published Regulation Best Interest, which will be enforced beginning June 30, 2020, and is now undergoing a 60-day public commentary period.

SEC-passes-fiduciary-ruleThe major change from current SEC regulations concerning transactions by broker-dealers with retail customers (i.e., private individuals rather than institutions) is that investments recommended can no longer just be “suitable” but have to be in the “best interest” of the customer.

Under Regulation Best Interest, broker-dealers must reveal any conflicts between their recommendation and the customer’s financial best interest. Broker-dealer contests and quotas over who can sell the most investments are also being nixed.

Consumer advocates claim the rule, which passed by a 3-1 vote on June 5, doesn’t go far enough in protecting the 43 million Americans with retirement or brokerage accounts. These advocates claim the new code of conduct lacks a fearful-enough enforcement mechanism.

“This rulemaking package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations, while simultaneously preserving retail investors’ access to a range of products and services at a reasonable cost,” said SEC Chairman Jay Clayton in a statement.

The Obama-era Department of Labor (DOL) released a Fiduciary Rule whose enforcement teeth convinced investment giant Merrill Lynch to switch from a commission-based to fee-based structure for its broker-dealers. Fee-based means the customer pays the broker-dealer a fee and the broker-dealer then earns nothing from the investment vehicle he recommends to the client.

That rule was overturned by the U.S. 5th Circuit Court of Appeals. The DOL is now working on a revised rule, which it expects to finish for publishing and review by December.

The SEC and DOL rules may end up being quite similar, according to DOL Deputy Assistant Secretary Jeanne Klinefelter Wilson. of the departments Employee Benefits Security Administration (EBSA).

“Our goal is to proceed on a broad, aligned framework,” Wilson told attendees at a recent conference in remarks about the DOL’s upcoming fiduciary standard.


NOTE: The details in this blog are provided for informational purposes only. All answers are general in nature and do not constitute legal advice. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The author specifically disclaims any and all liability arising directly or indirectly from the reliance on or use of this blog.
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