Groups, officials weigh in on SEC-proposed standard of conduct for broker-dealers

PROVIDENCE – Numerous groups and officials weighed in last week on the U.S. Securities and Exchange Commission’s Regulation Best Interest proposal that sets a standard of conduct for securities brokers-dealers when advising clients.

Many of those submitting opinions prior to the SEC’s deadline for accepting public comment said the proposal doesn’t offer investors enough protections.

Among them was Mass. Secretary of the Commonwealth William F. Galvin, who said the SEC is proposing a “weak and unclear” standard which, unless modified, would force Massachusetts to adopt its own rules to protect investors and to require broker-dealers to provide non-conflicted advice in the best interest of their clients.

“I had hoped that the SEC would follow the lead of Congress, as set out in the Dodd-Frank Act, and propose a strong conduct rule which would protect working families from abusive practices in the brokerage industry when they save for retirement and other major financial goals. But this proposed standard falls far short of the protections Main Street investors need,” Galvin said.

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With the public comment period now completed, the SEC is expected to begin finalizing the proposal.

The SEC voted on proposal in April, saying the package of rulemakings and interpretations were designed to “enhanced the quality and transparency of investors’ relationships” with broker-dealers. It said broker-dealers would be required to act in the “best interest” of a retail customer, and new rules were written to make it clear that broker-dealers may not put their financial interests ahead of the interests of clients.

The Financial Services Institute, a Washington, D.C., group representing independent financial advisers, was generally supportive of the proposal, saying it “adequately provides the ability for it to address the needs of various business models and clients … the proposed standard of care builds upon and fits within the existing regulatory framework.”

Scott Blake is a PBN staff writer. He can be reached at