Investment Professionals

SEC Adopts Anti-Investor Advice Standards on Partisan Vote

Investors Will Be Misled Into Expecting Protections the Rule Does Not Deliver, CFA Warns

Washington, D.C. The Securities and Exchange Commission (SEC) has voted on a package of regulatory proposals addressing the standard of conduct that applies when broker-dealers and investment advisers offer investment recommendations and advice to retail investors. Prior to the vote, CFA had identified in comment letters and meetings with the Chairman a handful of key changes that were needed to ensure the proposed rules would actually improve investor protections and reduce investor confusion.

While we will take the time over the next few days to carefully review the entire regulatory package in detail, this morning’s discussion made it clear that our top priority changes have not been adopted. In particular, we share Commissioner Robert Jackson’s concern that, “Rather than requiring Wall Street to put investors first, today’s rules retain a muddled standard that exposes millions of Americans to the costs of conflicted advice. Even worse, contrary to what Americans have heard for a generation, the Commission today concludes that investment advisers are not true fiduciaries. Today’s actions fail to arm Americans with the tools they need to survive the Nation’s retirement crisis. As a result, this regulatory package will mislead investors into expecting protections the rules do not deliver, putting investors at even greater risk.

CFA’s Director of Investor Protection Barbara Roper and Financial Services Counsel Micah Hauptman issued the following statement in response to the Commission’s presentation of the proposal.

“The SEC is throwing ‘Mr. and Ms. 401(k)’ under the bus,” said Roper. “These new rules seriously erode the Commission’s traditional interpretation of the Advisers Act fiduciary standard, giving brokers virtually unlimited ability to act as advisers, while simultaneously failing to regulate them accordingly, and making it easier for brokers to mislead their customers into believing they are getting trusted, best interest advice when they are actually getting investing recommendations biased by toxic conflicts of interest. The modest steps the Commission appears to have adopted to ‘enhance’ its proposed best interest standard for brokers – applying the standard to account opening recommendations, explicitly requiring brokers to consider costs, and tweaking the obligations that apply when brokers explicitly agree to monitor accounts – cannot compensate for the standard’s fundamental weakness. Investors will suffer real financial harm as a result of this best interest bait and switch.”

“While others at the SEC are patting each other on the back for saving, protecting, and enriching the brokerage industry, Commissioner Jackson distinguished himself as the lone commissioner who was willing to stand up for and protect investors,” said Hauptman. “We appreciate all of the work he put in to try to move this rule in a pro-investor direction and are confident that his perspective, which we share, will ultimately prevail, even if American’s have to wait a few years. The next Democratic Administration must revisit this issue to ensure that investors receive the protections they reasonably expect and need. Until then, this is a buyer beware market.”

“Now, more than ever, investors will need to be on their guard against brokers and advisers who seek to profit unfairly at their expense,” said Roper. “The good news is that there are many upstanding advisers who voluntarily embrace a higher standard than the Commission is willing to adopt and who are willing to commit to truly putting their clients’ interests first. With that in mind, CFA will in the coming weeks be releasing a set of tips on how investors can protect themselves since the SEC refuses to protect them.”