What DOL? SEC Reclaims Leadership On Broker Regulation

(The Hill) The Securities and Exchange Commission on Wednesday approved new financial advisory standards for stock brokers and financial advisers, likely setting up a legal battle with consumer advocates who have called for stricter rules.

The Republican-controlled SEC voted along party lines to finalize a package of four measures aimed at enhancing and clarifying rules on broker-dealers and investment advisers while limiting conflicts of interest with their clients.

SEC Chairman Jay Clayton, along with GOP Commissioners Hester Peirce and Elad Roisman, voted for the measures. Robert Jackson Jr., the agency’s sole Democratic commissioner, voted against them. 

The SEC rule comes almost a decade after the 2010 Dodd-Frank Act ordered the agency to write regulations for broker-dealer and investment adviser conduct. Last year, a stricter rule issued in 2016 by the Labor Department was struck down in federal court.

“This action is long overdue,” Clayton said Wednesday, touting the SEC “staff’s decades of experience and expertise, the information and feedback we received from investors and other market participants” in the 14 months since the package was proposed in April.

The SEC proposal received wide support from Wall Street trade groups and investment firms that were already subject to similar provisions under the industry's self-regulating bodies.

Democrats and consumer advocacy groups blasted the SEC proposal, calling it too weak to protect average investors when it comes to receiving financial advice.

“Today’s rules simply do not require investor interest to come first,” Jackson said ahead of the 3-1 vote. He dismissed the proposal as a “a policy choice in legalese” that “reinforces a muddled standard.”

The centerpiece of the proposal, a rule dubbed Regulation Best Interest, sets new standards for broker-dealers, with the goal of ensuring they provide clients with the financial products best suited to their needs.

The rule imposes a code of conduct for broker-dealers that requires them to prioritize the financial needs of customers over fees or commissions they would receive from selling a less suitable product.

The rule also instructs broker-dealers to mitigate or eliminate potential conflicts of interest by disclosing any financial incentives the broker has to sell certain products.

The SEC on Wednesday also approved an updated form through which a broker-dealer or investment adviser summarizes the duties of their role to a customer, an explanation of its standard of conduct for investment advisers and a clarification what advice is subject to the broader rule.


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