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The SEC Looks Like It Missed an Historic Opportunity to Protect Investors By Failing to Propose a Substantive “Customer Best Interests” Fiduciary Duty Rule

When you put your hard-earned money at risk by providing it to a broker for advice, shouldn’t he or she have to act in your best interest when giving you that advice?  That would be a fiduciary duty and we think that should be the law, but it is not.  The law today allows brokers to portray themselves as trusted advisers acting in your best interest, but they have no legal obligation to do so and, unfortunately, too many do not.  They sell products that generate big commissions and prizes for them, but carry huge fees and perform poorly for their clients.  A “best interest” fiduciary duty would prohibit that, but such a rule would hurt industry profits so they are fighting it tenaciously. 

That fight has been going on at the Department of Labor over the last five years regarding retirement investments.  It is now going to happen at the SEC regarding non-retirement securities investments because it proposed what it called “Regulation Best Interest.”  The title would make you think the SEC, whose primary mission is to protect investors, proposed an unambiguous requirement for investment professionals to act in the best interests of their customers.  However, the proposal appears to fall well short of that standard, relying too heavily on disclosure and other suboptimal measures like “title policing.”  While some provisions in the proposal may offer modest benefits to investors, the SEC appears to have missed an historic opportunity to finally establish a strong, clear, enforceable best interest standard for all advisers.  Nevertheless, we recognize that the devil is in the details and we look forward to reading the 1,000-page proposal with care and fully engaging in the upcoming rulemaking process with comments and advocacy aimed at producing an actual strong and enforceable rule requiring brokers to act in the best interests of their customers.   

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