Originally posted on CNBC by Lorie Konish.
- Starting this year, broker-dealers will have to answer to a best-interest standard when serving individual investors.
- But critics of the new regulation say it doesn’t go far enough to create one standard that both broker-dealers and investment advisors have to answer to.
- Now, Massachusetts is looking to enforce a uniform fiduciary rule to put an end to the conflicted advice that individual investors sometimes receive. And other states could follow suit.
A new federal regulation aimed at providing increased investor protection isn’t slated to go into effect until later this year.
But a fight is already brewing in one state — Massachusetts — over the potential enforcement of a stronger rule.
The Securities and Exchange Commission’s new rule, called Regulation Best Interest, went into effect in September of last year. But firms have until June 30 of this year to comply with the rule.
As its name implies, Regulation Best Interest — “Reg BI,” for short — requires brokers to keep their clients’ best interests in mind when recommending securities. It also requires additional disclosures outlining the terms of the relationship be presented to clients.
But the SEC rule was met with critics, including William Galvin, Massachusetts secretary of the commonwealth, who said that Reg BI did not go far enough.
In an August 2018 letter to the SEC, Galvin said the best-interest standard “will foster confusion and will fail to protect vulnerable investors.”
Instead, Galvin said a uniform fiduciary rule, which would require both broker-dealers and investment advisors to put clients’ interests first, would be preferable. Currently, broker-dealers answer to what is called a “suitability rule.” That means their recommendations must be suitable for clients. Investment advisors, on the other hand, are already held to a fiduciary standard.
The SEC has the authorization to come up with a uniform fiduciary standard under a 2010 law called the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Read the rest of the article on CNBC.com.