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SEC Publishes Investor Protection Rule

As public comment period begins, consumer advocates say regulation would be too weak

Hands cover and protect money

Anna Berkut/Alamy

Some consumer advocates have voiced concerns that the SEC proposal is not clear enough to protect investors.

UPDATE: AARP has created a webpage that can be used to submit comments to SEC regarding its draft rule on standards of conduct for investment professionals.

The effort to make sure that financial advisers put their clients’ best interests first entered a new phase Wednesday as the Securities and Exchange Commission (SEC) published for public comment its draft rule on standards of conduct for investment professionals. But some consumer advocates already have voiced concerns that the SEC proposal is not clear enough to protect investors.

At stake are the billions of dollars each year that retirement investors lose because of hidden fees and bad advice. The SEC’s proposed rule would require brokers and other financial advisers to disclose commissions, fees and conflicts of interest to clients up front. The SEC rule — which would govern securities but not other types of retirement investments — would also set new standards for advisers.

Upon releasing the rule, SEC Chairman Jay Clayton said, “It reflects a multi-pronged effort to fill the gaps between investor expectations and legal requirements, thereby increasing investor protection, and the quality of advice, while preserving investor access and investor choice, recognizing that access and choice are driven by what is available and how much it costs."

Voting against release of the rule, SEC Commissioner Kara Stein said: “For at least the last decade, investors have been asking for some type of fiduciary duty standard for broker-dealers who are giving advice. Unfortunately, the proposals before the commission today squander the opportunity to act in the best interest of investors .... [T]he problem we are attempting to address is an insidious one. We must remember that today’s proposals will have real effects on real people.”

Marcus Stanley, policy director for Americans for Financial Reform, a nonpartisan and nonprofit coalition formed in the wake of the 2008 financial crisis, agreed with Stein that the SEC's proposal fell short. “What we need is a straightforward, enforceable rule that would clearly require brokers to act in their clients’ best interests when giving advice,” he said.

The SEC proposal is the latest step in a years-long effort to protect retirement investors. AARP and other groups began working with the Department of Labor in 2011 to develop a fiduciary rule that required all financial advisers to do what’s best for retirement investors. The policy was enacted in April 2016. But in March 2017, the U.S. Fifth Circuit Court of Appeals overturned the rule after a lawsuit challenging it by the U.S. Chamber of Commerce and financial services organizations.

The public will have 90 days to comment on the SEC proposal before the agency takes any final action. AARP plans to comment on the draft regulation. Submit your own comment to the SEC by clicking here.

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