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SEC’s Peirce Claims Reg BI Stronger Than Fiduciary Standard

By Alex Padalka May 10, 2019

While consumer advocacy groups have slammed the SEC’s proposed revamp of regulations on investment advisor and broker conduct as merely maintaining the status quo, SEC commissioner Hester Peirce says it could be more stringent than what’s on the books now, according to news reports.

"We have this new standard, which is something more than suitability," Peirce said at an Institute for Portfolio Alternatives conference in Washington on Tuesday, InvestmentNews writes. "When you lay it side-to-side against the fiduciary standard, I think one could argue that it's a stronger standard because it does require mitigation or elimination of conflicts in a way the fiduciary standard does not."

SEC Chairman Jay Clayton has also argued that Reg BI, as it’s come to be known, will be stronger than the current suitability requirement placed on brokers, the publication writes. Critics, however, disagree.

"Sadly, the SEC has adopted such a weak interpretation of the [Investment] Advisers Act fiduciary standard that it may be fair to say that Reg BI is stronger, assuming the SEC doesn't allow disclosure alone to satisfy the mitigation requirement," Barbara Roper, director of investor protection at the Consumer Federation of America, tells InvestmentNews in an email. "But that is hardly an endorsement of Reg BI. Instead it just highlights the missed opportunity to do something meaningful to improve investor protections."

Roper’s group, along with consumer groups Better Markets and Consumer Action, wrote to Clayton last month saying the SEC’s current Reg BI proposal “suggests that the intent of the rulemaking is to codify, rather than enhance, protections investors currently receive under Finra’s suitability standard, which can be satisfied by recommending any of a potentially large number of ‘suitable’ investments.”

Hester Peirce

Clayton also testified in the U.S. Senate this week, reiterating that investment advisors and brokers should be treated differently to encourage competition but that Reg BI is designed to ensure that brokers and advisors deliver similar care, according to InvestmentNews. The SEC chair also told reporters that no date has been set for when the rule might roll out, the publication writes. Experts expect a final ruling sometime later this year.

“We’re getting a lot closer,” Clayton told reporters after the Senate hearing, according to the publication.