SEC BI Rule in flux-ish

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Is the SEC’s Best Interest Rule still happening?

Yes, at this writing. However, this week, there are two different articles – one in InvestmentNews and the other in Bloomberg – telling two different stories.

According to Bloomberg’s Robert Schmidt, the ink is barely dry on new federal rules governing broker conflicts, yet the industry is moving quickly to quash even stricter regulations that are now popping up at the state level.

New Jersey is one battleground state, with the state of Massachusetts following closely behind. In NJ, according to Schmidt, a group of 11 financial trade associations plans to ask the state’s securities regulator to reconsider its conduct proposal in light of action by the Securities and Exchange Commission (SEC) last week. The SEC measure requires brokers to act in the “best interest’’ of clients.

“The creation of overlapping, duplicative or potentially conflicting requirements could create serious issues for the industry’’ and would “likely lead to increased investor confusion and undermine the intent of federal law,” the trade groups wrote in a letter.

The trade associations signing the letter include the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, and the American Securities Association.

The fight over setting a code of conduct for brokers has been going on in Washington for more than a decade. The SEC’s regulation, approved on a 3-1 vote on June 5, impacts tens of millions of investors who buy stocks and bonds as they save for retirement, new homes, and college.

Still, reports Schmidt, much remains unsettled. While brokers widely lauded the SEC regulation, opponents are urging states to do their own, stricter rules.

Do the states want more oversight than the SEC?

Yes. Along with New Jersey, Nevada is also considering imposing stricter requirements on brokers and Massachusetts is seeking comments on its own tougher rule.

Writing in InvestmentNews, Reporter Greg Iacurci noted that Massachusetts Secretary of the Commonwealth William Galvin said his agency is proposing a fiduciary standard of care in response to the SEC’s regulations because he believes the SEC’s regulations do not go far enough to rein in broker conduct. He intends that Massachusetts fiduciary obligation will apply to recommendations, advice, and the selection of account types, according to the announcement. Therefore, it will apply to individual retirement account rollovers, as well as recommendations to open accounts involving asset-based or transaction-based remuneration, it said.

What does all this regulation mean for RIAs/BDs and others?

Ongoing regulatory oversight and demand for compliance. More work for compliance professionals. And, likely, more public shaming of those caught compliant deficient. For more than 25 years, Patrina has been helping compliance professionals like you keep track of “bad apples,” and stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive 8-module compliance solution, and compliant data capture & file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.

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