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Brokerage Exec Says SEC’s Regulation BI Could Limit Choice of Investments

May 21, 2019

Executives at some brokerages say that the SEC’s proposed package of rules governing broker and investment advisor conduct may end up limiting investment options, according to news reports.

The commission’s Regulation Best Interest would require brokers to disclose or mitigate conflicts of interest, including incentives to push certain products. That could lead brokerages to simply stop offering certain investments, Norman Ashkenas, senior vice president and chief compliance officer at Fidelity Brokerage Services, said at Finra’s annual conference last week, according to InvestmentNews.

"There is a concern some firms may limit what’s on the platform so that the universe is narrower as opposed to being able to talk to the investor and say, 'This is what we’re providing advice about, there are other things on the platform,’" he said, according to the publication.

At the same time, because the regulation is subjective when it comes to what constitutes a conflict of interest, Reg BI will heighten the supervision of brokers, according to Evan Charkes, associate general counsel and managing director at Bank of America, InvestmentNews writes.

Hillary Sale, professor of law at Georgetown University and a Finra board member, said that brokerages should try to eliminate rather than mitigate conflicts of interest, according to the publication.

"You should start there before you go to mitigation and disclosure," she said, according to InvestmentNews. "In the end, what you want is happy, long-term clients, and you’re not going to get them if you don’t think about it from their perspective."

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Speaking at the same conference, Sutter Securities CEO Robert Muh said that the SEC needs to provide more guidance on what type of conduct would be considered compliant, as reported. As it stands now, brokerages may simply opt for the lowest-cost investment products to comply with the regulation, he said.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.