A new regulation the Securities and Exchange Commission (SEC) issued Wednesday would fail to protect consumers from investment advice that is not solely in their best interest, consumer advocates say.
Amid growing concern from advocacy groups, government officials and others that retail investors lose as much as $17 billion annually due to profit-driven advice from financial advisers and brokers, the commission made a proposal last year to address such criticisms. These losses are particularly troubling as more Americans are relying on 401(k)s and IRAs rather than pensions to fund their retirement. At a meeting Wednesday in Washington, D.C., the SEC voted 3-1 to approve its “Regulation Best Interest” proposal.
In his remarks ahead of the vote, SEC Chairman Jay Clayton said the regulation will raise the standard of conduct for broker-dealers, requiring them to “act in the best interest of their retail customers when making a recommendation.” The regulation also would require registered investment advisers and broker-dealers to give customers disclosure forms that have information about fees, costs and potential conflicts of interest.
But AARP and other advocacy groups contend that the final regulation falls short of its stated goal of helping everyday investors better understand when financial professionals have to put their clients’ financial goals first. Many of these critics have pointed out that the regulation actually might confuse investors about what standards to expect from financial professionals. In the year since the SEC asked for public feedback on its Regulation Best Interest proposal, it received more than 10,000 comments. The SEC is the independent federal agency responsible for protecting investors and regulating financial markets.
"AARP is alarmed by the outcome of SEC's rule-making today on the standard of conduct for financial professionals,” said Nancy LeaMond, AARP's executive vice president and chief advocacy and engagement officer. “To make matters worse, the SEC has maintained the now misnamed ‘best interest’ label, which AARP's consumer testing revealed may mislead investors into believing they are protected by a higher standard. Continuing to mislabel this new rule as a ‘best interest’ standard risks continuing to confuse and mislead consumers.”