SEC ‘best interest’ standard well-intended but challenges remain

Posted By Student Newsroom

By Jinman Li
Medill News Service

The new “best interest” standard for brokers proposed by the Securities and Exchange Commission is a positive step with good intentions but several problems remain, said Maureen Thompson, vice president of public policy at Certified Financial Planner Board of Standards Inc.

Thompson spoke at a panel discussion Friday at the Society for Advancing Business Editing and Writing in Washington, D.C. The standard establishes a code of conduct for brokers who make investment recommendations for customers.

Maureen Thompson, left, Leo Rydzewski, Barbara Roper and Jill Schlesinger speak about the issue of fiduciary at the Society for Advancing Business Editing and Writing’s spring conference.

The proposal was approved by a 4-to-1 vote on April 18 and is now subject to a 90-day public comment period.

Some people think the SEC may have rushed out the proposal to get ahead of the April 30 deadline when the Labor Department has to decide whether to challenge the Fifth Circuit decision that vacated the fiduciary rule, Thompson said.

One of the “fundamental problems” of the SEC standard is the lack of a clear definition, Thompson said. It requires the brokers to act in the best interest of clients but is less restrictive than the Labor Department’s fiduciary rule, she added.

“Now we’re faced with the possibility of a role where brokers get to say they’re working in their client’s best interest, but it doesn’t mean at all what fiduciary means,” Thompson said.

Barbara Roper, director of investor protection at the Consumer Federation of America, who has been calling for a fiduciary rule for financial planners since she joined the CFA in 1986, said it’s harder for retail investors — whom she called “the mom and pop investor” — to differentiate between brokers and investment advisors since many of them call themselves financial advisors.

The brokers, however, abide by suitability, a lower standard than fiduciary, which only requires them to recommend products that fit with the clients’ demands rather than their best interests, Roper said. The broader range of products allows them to recommend the most profitable products rather than necessarily the best ones for their clients, she added.

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