Since the Department of Labor’s fiduciary rule for retirement accounts was struck down, the Securities and Exchange Commission has been working to create its own best interest rule. Called Regulation Best Interest, the SEC’s thousand-page proposal would apply to all accounts, not just retirement accounts. It is supported by most financial industry groups, and opposed by consumer groups. David Certner, AARP legislative counsel, has said, “Absent a fiduciary standard, investors will continue to be vulnerable and will not receive the protections they need and deserve.” Consumer groups also claim the rule does not adequately define “best interest,” and that the recommended new disclosure forms are confusing. The SEC proposal covers three broad areas:
- Disclosure: Broker-dealers must disclose key details of the client-broker relationship, including conflicts of interest.
- Diligence and care: Firms must exercise “reasonable diligence, care, skill and prudence” to understand the product they’re recommending to clients. They must also have a reasonable basis to believe that this investment, as well as a series of recommended transactions, is in the investor’s best interest.
- Conflict of interest: Broker-dealers must maintain and enforce policies and procedures to identify and disclose and mitigate — or eliminate — material conflicts of interest stemming from financial incentives.
The SEC rule is still under study.
A Registered Investment Advisor must still adhere to the fiduciary standard. Investors relying on a broker to handle their accounts should continue to find out everything possible about any recommendations made, how the broker is being paid, and all costs and fees associated with any investment.
