Wealth Management


A lot of brokers have been feeling good about the SEC’s best interest rule. While that may be misguided, the perception is that the rule is significantly less stringent than the DOL rule, and thus offers a better operating paradigm. However, developments with the rule are not looking favorable to those hoping for a loose regulatory structure. In House hearings recently, four out of five witnesses called to testify on the rule said that having no new rule would be better than having the BI proposal implemented. One top compliance firm thinks the SEC is moving towards a much more strict DOL-type rule, saying “We predict that the SEC is going to re-propose [Regulation Best Interest] to make it closer to a fiduciary standard because the states have come out [with their own initiatives]”.

FINSUM: We have said for some time that we do not believe the SEC rule will be implemented in anything near its current form. That is reality is looking ever more likely.


There seems to be a big misconception is the industry. That misconception is that the SEC’s best interest rule is somehow a less stringent standard than the DOL’s fiduciary rule. The core reason this is believed is that advisors understand it to be somewhere between the suitability standard and fiduciary standard in rigor. However, a new article by Benefits Pro is arguing that it is anything but. Just because the rule intentionally does not define “best interest”, the entire package is drafted in a way that makes very clear it is a fiduciary standard. SEC’s chief Jay Clayton sees it this way, saying “we’ve called it the best interest standard, but I want to be clear — for broker dealers there are core fiduciary principles embodied in that best interest standard. In fact, those fiduciary principles are, I believe, the same as fiduciary principles that are embodied in the investment adviser standard”.

FINSUM: The SEC rule seems to work by creating situations in which one is compelled to act as a fiduciary rather than defaulting to terminology that dictates so. That may be a difference in conception, but in practice it could be very similar to a fiduciary rule.


In an eye-opening claim, both RIA and broker advocates are claiming that state level fiduciary rules may be illegal under federal law. Both the Investment Adviser Association (IAA) and SIFMA say that at least for RIAs, Nevada and other states’ fiduciary rules are illegal because of the 1996 National Securities Markets Improvement Act, which prohibits states from imposing additional rules on SEC-regulated advisors. The IAA said “For more than 20 years, federal law has prohibited states from adopting any rules, interpretations, or guidance that would have the effect of substantively regulating SEC-registered advisors. The IAA will engage with policymakers in any state that appears to be moving in that direction”.

FINSUM: A lot of the states’ fiduciary rules don’t just stop at brokers and extend to RIAs and insurance agents. This IAA argument seems like pretty strong grounds for a lawsuit to block any/all of these.

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