This article originally appeared on Advisor Perspectives.

A year-end SEC order and statement by its staff on Reg BI exams are a positive signal for investors in need of fiduciary protection.

Those two announcements were unrelated, but each distinctly represents positive steps.

In the first, in an administrative proceeding against Voya Financial, the SEC set out practices regarding share-class selection, cash-sweep money market funds and not waiving upfront commissions.

Those practices resulted in customers incurring additional costs. As the SEC stated regarding Voya’s recommending certain cash-sweep money market funds, “As a result, Voya’s advisory clients generally received lower performance and paid higher fees than they otherwise would have.”

Each of those three practices also entailed disclosure failures, according to the SEC. Voya, “made misleading statements and provided inadequate disclosures regarding its receipt of 12b-1 fees from clients investments.”

The “positive” in this SEC action is the greater clarity in explaining the action. Voya’s harmful practices were labeled as fiduciary breaches. The harm to clients was clearly stated. The action is about, “Voya’s breach of its fiduciary duties,” according to the SEC. Recommending more expensive share classes and waivable upfront commissions pit the interests of the advisor against those of the client.

The SEC announcement release told the story: ”Advisory firm settles fraud charges, agrees to repay harmed clients.”

Language matters. Calling illegal practices fiduciary breaches and not disclosure failures matters.

Too often, however, failures to address conflicts have been labeled disclosure failures by the SEC. As I have noted, this practice became especially clear during the Obama administration.

In the case of share-class recommendations, this was common. While, recommending a more costly identical share should, on its face should be considered a fiduciary breach, too often it has been labeled a disclosure failure. Calling it a disclosure failure glosses over the seriousness of the breach and makes it appear less important.

In the second example, SEC staff issued a statement on its thinking on exams of compliance to Regulation Best Interest (Reg BI) in 2021.

The staff says it will “expand the scope of examinations” of Reg BI to include a reasonable basis for determining what is a best-interest recommendation.

More specifically, the components of Reg BI that may be the subject of an examination include, according to the statement, the following:

• “Alterations to firm product offerings including the removal of higher cost products when lower cost products are available.”
• “Evaluations of how firms have considered costs,” which may include the information available to personnel to identify “relevant costs”; and how this information is used and how consideration of costs is documented.

This attention to costs suggests there may be new thinking on the topic since the Reg BI was introduced in June 2019.

This new thinking may be a ripple effect of the significant number of share-class-initiative actions brought in the past two years. In those actions, investment advisers typically recommended identical products with higher costs because their dual registered broker-dealer could receive the 12b-1 distribution fee and share it with them. Those actions put costs front and center.

This new thinking suggests a greater emphasis on the importance of costs and the challenge to effectively address them. The SEC’s inquiring about information available to a brokerage’s staff and how it is used provide a good starting point.

Finally, this new thinking may also reflect what the Reg BI release acknowledged: “The desire for greater fee transparency was a consistent theme of our investor engagement.”

In advancing Reg BI, SEC Chairman Clayton often said the rule was designed to ensure that disclosures would meet investors’ “reasonable expectations.” These two unrelated announcements at the year’s end are positive steps for investors to meet their reasonable expectations.