• Millions of Americans have a relationship with a financial professional and overwhelmingly they are satisfied and trust their advisor.
• The U.S. retail investor marketplace is mature, highly competitive, efficient and the largest in the world.
• The marketplace is also highly regulated – enhanced most recently by the SEC’s Regulation Best Interest in response to the Dodd-Frank Act, which imposes stringent mandates on brokers to disclose, mitigate and eliminate conflicts related to the provision of advice.
• Efforts to reprise the DOL fiduciary rule would conflict with Reg BI’s robust investor protection, likely restricting access to advice, raising costs to investors and limiting their choice to select the service they want to buy.

Millions of Americans have a relationship with a financial advisor who provides financial planning and/or investment advice services to their retirement accounts such as 401(k)s and IRAs, 529 educational savings plans, or general savings and investments accounts (e.g., personal investments in stock, bonds, mutual funds, and ETFs). The U.S. retail investment market is the largest and most competitive in the world, allowing individual investors to “vote” with their feet and decide among a wide range of options where to invest their money. Everyday investors benefit from access to low-cost investment products, low-or-no dollar brokerage commissions, and accessible education and market information tools across an array of different services – from full asset management to DIY discount brokerages.

The foundation of the U.S. retail investor market is customers’ trust that their financial professionals will act in their best interest, reinforced by strong and firmly enforced regulations. The Securities and Exchange Commission (SEC) is the primary federal agency that regulates the menu of services in which retail investors may choose to invest their money.

Retail brokerage accounts, including retirement brokerage accounts, are regulated under the Securities Exchange Act and retail advisory accounts under the Investment Advisers Act.  Retail brokerage accounts are also regulated by the Financial Industry Regulatory Authority (FINRA) on behalf of and in addition to the SEC.

In 2020, the SEC enacted Regulation Best Interest (Reg BI) under authority established by Congress in the Dodd-Frank Act. That rule elevated the standard of care that financial advisors owe to their clients by requiring them to act in their clients’ best interest and to disclose, mitigate, or eliminate any conflicts.  The law is enforced by both the SEC and FINRA. In sum, Reg BI remains the strong, new, protective law that applies to every investment sold through a brokerage arrangement whether it is a qualified retirement account like 401(k)s and IRAs or an investment account.

The Department of Labor (DOL), which also oversees retirement accounts, undertook efforts to amend its rules while working to be consistent with Reg BI.  But now, some are suggesting the DOL should consider imposing an entirely new rule that would conflict with Reg BI and likely limit or eliminate access to advice for millions of investors or raise their costs by requiring them to buy services they don’t want or need.  We know this because that is exactly what happened when the DOL previously sought to impose its own standard.

Broker-dealers and the broader financial services industry have long advocated for strong and consistent federal rules to ensure Americans with savings and investment accounts are protected against conflicted advice from their advisors. In the aftermath of the 2008 financial crisis, SIFMA and its members advocated for Congress and the SEC to adopt a best interest standard of conduct for broker-dealers that encompasses a duty of loyalty, a duty of care, and enhanced up-front disclosures, which ultimately were included in Section 913 of the Dodd-Frank Act.

Even though subject to rigorous regulatory rules and oversight, investment firms and their professionals’ success is dependent on the trust of their clients.  Virtually every firm that provides investment advice provides a full range of services, from brokerage subject to the best interest standard to fully managed accounts under the Investment Advisors Act fiduciary standard. In fact, some clients have both brokerage and investment advisory accounts and for good reason. It is the client who chooses what service they need and want to pay for.  For the “buy and hold” investor, a brokerage account, including an IRA brokerage account, is the most cost-efficient model.  It makes no economic sense to pay an ongoing management fee for a long-term investment in an index fund or bond ladder.  For the client who wishes to give their adviser full discretion and management over their investments, an advisory account may make sense even at a higher ongoing cost. What does not make sense is taking that choice away from the client.

Over the last five years the industry has made substantial changes to their internal policies and procedures to respond to DOL concerns about conflicts of interest when providing investment advice. These changes accelerated following the enactment of Reg BI, which provided a set of common standards to meet across the industry. For example, a SIFMA survey found that many firms eliminated certain conflicts of interest from their client relationships, removing certain products and services such as high-fee mutual funds that do not serve their clients’ best interest, and ensured that their financial advisors are not incentivized to recommend a product that is not in the customer’s best interest.

Implementing these changes has required a substantial investment of resources including technology operations, compliance, employee training and client education. In a survey of 20 member firms, SIFMA found that approximately $114 million have been allocated to comply with Reg BI and ensure that their clients’ best interests always come first, including more than $61 million for technology costs alone.  Compliance with Reg BI is not optional, and regulators have made it clear that firms will be held accountable.

Notwithstanding all of the work to implement and comply with the 2020 rule, the new rule the DOL is reportedly considering threatens to undermine the progress achieved while disrupting the marketplace once again. Some believe that the new rule proposal should reinstate standards in the so-called “fiduciary rule” that DOL enacted in 2016, even though the Fifth Circuit Court of Appeals invalidated that rule “in toto” in 2018.

The DOL’s 2016 rule led to limits on access to advice and products. Some firms stopped offering mutual funds for IRAs in brokerage accounts while others stopped allowing brokerage accounts for IRAs altogether, eliminating choice and increasing costs.  Again, virtually every investment firm providing brokerage services also provides managed advisory accounts.  It is the customer that chooses.

The vast majority of Americans with savings, retirement, and investment accounts place a premium on the advice they receive from their financial advisors. Research firm Cerulli Associates found that 78 percent of investors report using a professional financial advisor and were “very satisfied” with their advisor relationships, 74 percent would recommend their advisor, and 77 percent believe their advisor is worth the cost.

It is undeniable that SEC has imposed a stringent new rule in Reg BI that governs the provision of investment advice to brokerage customers. Firms have taken the steps to comply and are subject to rigorous examination and enforcement by their regulators. Even the DOL has taken steps to bring their rules in line with Reg BI.  To now go back and rewrite the rules all over again would cause market disruption at the expense of the client, particularly those who need to save the most.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry.