19 April 2018

SEC proposed rule pushes for fee clarity and customer-first advice

The US SEC has proposed a new rule requiring investment advisers and broker-dealers to explain fees and put customer first.

The US Securities and Exchange Commission (SEC) has proposed a new rule requiring investment advisers and broker-dealers to explain clearly the fees investors pay and commissions brokers earn when giving financial advice. The 1,000-page Regulation Best Interest would require firms to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  The regulation is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.

Ban on using term “adviser”

The commission proposed to help address investor confusion about the nature of their relationships with investment professionals through a new short-form disclosure document, and would restrict certain broker-dealers and their financial professionals from using the terms “adviser” or “advisor” as part of their name or title with retail investors. The rule comes after more than a decade of regulatory deliberation over how to address conflicts of interest in the investment advice industry. If passed, it would replace the Obama-era fiduciary rule, which was issued by the Labor Department and was overturned in March by the 5th US Circuit Court of Appeals.

Concerns raised

SEC Chairman Jay Clayton said the rule 'reflects our efforts to fill the gaps between investor expectations and legal requirements, thereby increasing investor protection and the quality of advice, while preserving access and choice, recognizing that ... (is) driven by what is available and how much it costs.' There are some concerns raised by firms in the financial press, including some saying the rules lack sufficient clarity. The public comment period will remain open for 90 days following publication of the documents in the Federal Register.