Regulators have new rules for Wall Street brokers providing investment advice: Put the customer first.
But consumer advocates argue that the rules amount to little more than a marketing slogan.
The Securities and Exchange Commission on Wednesday voted to pass the so-called Regulation Best Interest. The commission said the changes would simplify consumers’ lives and tighten the standards governing brokers who sell investment products.
Different kinds of professionals have long had different requirements. Brokers, technically known as registered representatives, have generally adhered to a suitability rule — they must recommend investments that are “suitable” based on the customer’s characteristics including age, goals and stomach for risk. That is in contrast with investment advisers, who have been held to a higher standard — fiduciary duty — requiring that they always put the customer’s interest ahead of their own.
“This rule-making package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations,” said Jay Clayton, the S.E.C.’s chairman.
But consumer advocates say the new rules do little more than codify the status quo while letting the brokerage industry market itself as always doing the right thing for customers, giving them a false sense of security.
The concerns center on how far brokers will ultimately have to go to minimize or eliminate conflicts of interest. Advocates worry that the rule doesn’t actually define what it means to act in a customer’s best interest, and that it doesn’t require brokers to eliminate conflicts, but only disclose them. They also fear that the S.E.C. has watered down the more rigorous standard that applies to investment advisers.
“When working people seek out investment advice, they expect and deserve to be able to rely on the people providing that advice to prioritize their need for a secure financial future over the financial professional’s interest in getting rich,” said Heather Slavkin Corzo, a senior fellow at Americans for Financial Reform and director of capital markets policy at the A.F.L.-C.I.O. “The S.E.C., in finalizing this rule, has failed to set rules that meet that basic standard.”
The sole dissenting commissioner, a registered independent who fills one of the Democratic seats, summarized the rule as follows: “Does this rule require customers’ interest to come first?” the commissioner, Robert Jackson, said in an interview. “No, it doesn’t.”
Mr. Clayton took issue with that characterization during the meeting at which the commissioners voted for the rules.
The rules “will substantially enhance the broker-dealer standard of conduct,” he said. They would also require brokers to “act in the best interest of their retail customers when making a recommendation, including not placing their financial or other interests ahead of the interests of the retail customer.”
The rules will take effect 60 days after they are published in the Federal Register.
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