Investor protection rule is dead

Personal Finance


In April, the SEC said it planned to propose a best-interest standard for investment advisers and broker-dealers that make recommendations to retail investors. The agency also opened the proposal up for a 90-day comment period.

The Securities Industry and Financial Markets Association, a trade group that represents banks and asset management and securities firms, praised the court’s decision.

“We are pleased the Fifth Circuit today issued its mandate,” SIFMA president and CEO Kenneth E. Bentsen, Jr. said in a prepared statement. “The SEC, not the DOL, is the appropriate regulator in this area, and we look forward to working with the SEC on the current proposed rule-making to establish a best interest standard across all accounts, and not just retirement accounts.”

Knut Rostad, president of the Institute for the Fiduciary Standard, a non-profit research, education and advocacy organization, called the court’s decision “tragic.”

“It’s clear consumers are on their own,” Rostad said.

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Rostad said he met with SEC Chairman Jay Clayton on Tuesday, who affirmed he is “totally committed to moving these proposals forward as fast as possible.”

But the best-interest standard will require significant strengthening and clarification, Rostad said, including for industry professionals who do not know the difference between a best-interest and fiduciary standard.

“For years, the courts have used best interest and fiduciary interchangeably,” Rostad said. “It’s not just the investor on Main Street who will be confused. Lots of other people will be confused as well.”

With any regulation far from being enforced, investors should demand to know whether their advisor is acting as a fiduciary.

“Demand that the individual puts in writing they are fiduciaries at all times for all advice in the relationship,” Rostad said. “The vast majority of financial professionals will not be able to do that.”



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