Monday, 18 June 2018 09:40

The Big Loophole in the SEC Rule

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The SEC’s new best interest rule has garnered a great deal of feedback. While on the whole the industry’s reception has been positive, there is some criticism and the view that the rule needs fine tuning, particularly in regards to the use of the “advisor” title. Well, there is apparently also a big loophole in the rule: there is no best interest standard for brokers providing advice to 401(k) sponsors because such sponsors to not fall under the SEC’s definition of a “retail” investor. According to the American Retirement Association, “The commission should clarify that the definition of retail customers include nonprofessional fiduciaries of retirement plans … Otherwise, what you have is an unlevel playing field”.

FINSUM: This seems like something the SEC just missed (especially because the loophole is created by two separate components not fitting well). We suspect this will be amended.

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