SEC’s Best Interest Standard 2 Years Away, DrinkerBiddle Says

A Securities and Exchange Commission proposal to raise investment-advice standard for brokers is still about two years away, an expert said Wednesday.

Under the SEC’s proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy.

“It seems like we're looking at January through July 1, 2020,” said Fred Reish, a partner at Drinker Biddle.

The proposal does not explicitly define "best interest,” and instead frames best interest around specific disclosure, care and conflicts of interest obligations. The SEC is collecting comment until Aug. 7

What ultimately constitutes “best interest” could be drawn from previous definitions, FINRA rules and other disclosure clauses, Drinker Biddle experts said in a webinar titled "What Does Best Interest Mean?" It also seems clear that the broker-dealer community and the registered investment advisor community will be treated differently under the rule.

Compromise in the Making?

The rule is seen as a middle ground between full fiduciary status and the lighter suitability standard that brokers operate under now. Some analysts have even described the SEC’s proposed regulation as "suitability plus."

But many in the financial advisor community have criticized the rule saying it doesn’t go far enough to protect investors who need all the help they can get as more people rely on a pay-as-you-go model to help them fund retirement.

The rule needs to hold brokers to a higher or fiduciary standard, advisors say.

While implementation remains two years away at least, SEC Chairman Jay Clayton and the Trump administration will seek to move ahead with a workable rule, said Bradford P. Campbell, a partner at Drinker Biddle.

The Trump administration and Clayton want to “get this done and done concretely so that it sticks on the books,” he said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected]

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