Regulation Best Interest is not yet in its best form, according to one Securities and Exchange Commission official.
As first reported in Financial Planning, while the regulator shows every sign of moving ahead with its proposal for new rules governing brokers and advisors, but Reg BI will need major rewrites and revisions before it can move ahead. Commissioner Robert Jackson appealed for significant reforms to Reg BI at the annual SEC Speaks conference earlier this month, saying he is “very hopeful” that the commission can finalize the rule on a unanimous, bipartisan basis.
“I voted for the proposal because I thought it was the right step forward for the agency to take,” Jackson was quoted as saying. “I said then and I believe today that there are significant changes we should make to the proposal before it goes final.”
In separate remarks at the conference, held in Washington, SEC Chairman Jay Clayton says that finalizing the rule is a “top priority” for him. Clayton previously indicated that he would like to put the measure to a vote later this year.
“My view is these standards should reflect what retail investors would reasonably expect of these financial professionals,” Clayton added.
But Clayton also stressed the importance of preserving investor access to a variety of business models and fee types. Many in the brokerage sector have cautioned that a strict, advisor-like fiduciary rule for brokers would effectively regulate the commission model out of business, cutting off access to basic financial advice for lower- and middle-income investors.
For Jackson, however, the proposed rules come up short because the term “best interest,” the cornerstone upon which they are built, is left undefined.
“What I’ve advocated for is that we clarify the standard with respect to what exactly are the obligations a broker owes to their customer,” Jackson said. “To the degree that we call it ‘Regulation Best Interest,’ the standard doesn’t need to be especially lawyered or especially long. We can and should just say in my view that the obligation of the broker is to put the client’s interest first.”
