SEC poised to adopt rules aimed at preventing broker
conflicts, boosting disclosure
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[June 05, 2019]
By Katanga Johnson
WASHINGTON (Reuters) - The U.S. Securities
and Exchange Commission (SEC) on Wednesday will vote to adopt a package
of rules mandating brokerage firms disclose potential conflicts in the
fees investors pay and the commission brokers earn when giving financial
advice.
The Regulation Best Interest rule also requires brokers to raise the
advice standard to meet a client's best interest when recommending
stocks, mutual funds and other financial products.
The vote caps a 10-year battle over regulation of the investment advice
industry which last year saw lobby groups successfully sue to overturn a
similar Barack Obama-era fiduciary standard proposed by the Department
of Labor.
The SEC rule, if adopted, will be a win for Wall Street because, unlike
the Labor rule, it would still allow brokers to recommend products that
benefit them, provided they disclose the conflict.
The SEC rule prescribes what brokers must do to comply, a step-up up
from the current suitability standard that allows brokers to recommend
products that they view as appropriate for a client's investment goals
and risk tolerance.
SEC Chairman Jay Clayton, a Republican appointee, says the proposed rule
would elevate the standard for both broker dealers and wealth managers.
Investor advocates, however, say the SEC rule is too vague in its
definition of "best interest" and does not address all investment advice
conflicts, including the higher payments that brokers receive for
selling products that are more expensive to trade.
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A street sign is seen in front of the New York Stock Exchange on
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"The SEC under Clayton pledged to protect Mr. and Mrs. 401K at the onset of
crafting regulation best interest. The proposed rule-making is a betrayal of
that promise," said Barbara Roper, director of investor protection at the
Washington-based Consumer Federation of America.
The rule has been divisive within the agency. Robert Jackson, a
Democrat-appointed commissioner, has said the proposed rule does not make any
serious attempts to understand the costs and benefits for investors as the
economic analysis supporting the agency's rules is too weak. If he fails to vote
for the rule on Wednesday, his dissent could open it up to potential litigation
from consumer groups.
The three Republican-appointed voting members are expected to vote for the
package of rules.
Industry groups say that the rule's heightened disclosure requirements will
benefit consumers.
"Investment advice is not 'one-size-fits-all' and neither is this rule's
oversight approach, which allows for the current brokerage business model to be
upheld while protecting investors from harm," said Samantha DeZur, U.S. Chamber
of Commerce director for capital markets competitiveness.
(Reporting by Katanga Johnson; Editing by Michelle Price and Lisa Shumaker)
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