SIFMA Submits Comments to the SEC on Regulation Best Interest

Washington, DC, August 7, 2018 – SIFMA today responded to the Securities and Exchange Commission (SEC) request for comment on its proposed Regulation Best Interest (Reg BI), expressing support for the proposal and offering suggestions to ensure it most efficiently accomplishes its stated goal of protecting investors.

“SIFMA has long supported the creation of a heightened best interest standard for broker-dealers across all accounts that builds upon the existing, robust, broker-dealer regulatory regime.  We commend the SEC for proposing a new best interest standard that would protect retail investors while preserving retail investor choice, said Kenneth E. Bentsen, Jr., SIFMA president and CEO.  “We urge the SEC to promptly evaluate, and as appropriate, incorporate the legal analysis, data and commentary received during the comment period and swiftly proceed to final rulemaking.”

Specifically, SIFMA members strongly support Reg BI because it:

  • Significantly strengthens and materially exceeds the existing FINRA suitability standard. Under Reg BI, recommendations must be not only suitable, but also in the retail customer’s “best interest,” meaning that broker-dealers cannot put their interests ahead of the interests of the customer.
  • Preserves access and choice for investors while providing meaningful protections in areas that the Department of Labor’s (DOL) conflict of interest rule (DOL Fiduciary Rule) sought to address.
  • Appropriately follows a principles-based, facts and circumstances approach; the contours of the “best interest” obligation are clearly delineated by the new and heightened care, disclosure and conflicts of interest obligations imposed by Reg BI.

SIFMA’s general support notwithstanding, there are certain areas of Reg BI that should be modified or clarified in order to allow firms to implement the regulation in a manner that would most effectively benefit investors.

SIFMA’s recommendations include:

  • Modify the definition of “retail customer” to be harmonized with FINRA’s definition; doing so would benefit both investors and broker-dealers.
  • Refine the proposed interpretation of “material conflicts of interest” to elicit meaningful disclosures.
  • The Conflicts of Interest Obligation should not distinguish between financial and non-financial conflicts of interest. There should be parity between the treatment of conflicts of interest by investment advisers under the fiduciary standard and by broker-dealers under the best interest standard.
  • Provide further guidance and clarification regarding the Disclosure Obligation. We also seek clarification about when oral disclosures suffice, about the timing and specificity of disclosure, and about the adequacy of website disclosures, among others.
  • Clarify expectations on how firms can satisfy the Care Obligation. In particular, we seek confirmation regarding the relevance of cost and how firms can limit their offerings to proprietary and other limited categories of products.
  • Adopt a simplified and more flexible approach to proposed disclosure Form Customer Relationship Summary (Form CRS).

SIFMA’s letter further details these points and is available here:

SIFMA’s Asset Management Group (AMG), whose members consist of leading institutional asset managers serving institutional and retail clients, submitted a companion letter to the SEC on the Proposed Interpretation Regarding Standard of Conduct for Investment Advisers. The comments address the following areas of concern and asking for clarification and modifications with respect to institutional registered investment advisors:

  • The proposed interpretation of investment advisers’ fiduciary duty inappropriately departs from existing precedent in describing the fiduciary duties of investment advisers towards their institutional investors.
  • Additional new federal regulatory requirements for investment advisers may unnecessarily add to their regulatory burdens without adding meaningful protections for institutional investors. The changes would also have a disproportionate effect on smaller advisers and make the formation of new advisers more difficult and costly.

SIFMA AMG’s letter further details these points and is available here: