The Securities and Exchange Commission appears to be cracking down on broker conduct in its investment advice overhaul by pushing for a best-interest standard that compels brokers to put clients' financial interests ahead of their own, requires them to mitigate financial conflicts and prevents brokers from using the terms "adviser" or "advisor" to describe themselves.
This is according to an overview of the proposal's contents published Wednesday evening by SEC Chairman Jay Clayton and a fact sheet the SEC released Wednesday afternoon. Both outlined, in broad contours, the contents of proposed rule, which hadn't yet been publicly released as of early Wednesday evening. Experts stress, however, that it's too early to tell — absent specific regulatory language — to what extent the SEC is clamping down.
Mr. Clayton said the SEC's objectives are to "enhance retail investor protection and decision making," preserve access to a "variety" of types of investment products and services, and raise investor awareness.
"It has long been recognized that many investors do not have a firm grasp of the important differences between (broker-dealers) and (investment advisers) — from differences in the variety of services that they offer and how investors pay for those services, to the regulatory frameworks that govern their relationship," he wrote in the proposal overview, adding that the confusion "could cause investor harm."
The SEC voted 4-1 to release the proposal late Wednesday afternoon. Democrat Kara Stein was the sole commissioner to vote against releasing it, saying it maintains the status quo instead of strengthening current advice standards.
But even those commissioners who supported releasing the rule acknowledged that it needs more work. For example, Republican commissioner Hester Peirce said that the part of the proposal requiring brokers to act in the best interests of their clients is mislabeled.
"It would be better to say we're proposing a suitability-plus standard," Ms. Peirce said, referring to the current rule that governs brokers' recommendation to clients.
The proposal will total more than 1,000 pages and will have a 90-day comment period. SEC commissioners held a hearing on the proposal Wednesday afternoon, with Republicans and Democrats at loggerheads over its contents.
Mr. Clayton's overview highlights two broad rule-making goals: raising and clarifying standards of conduct for broker-dealers and investment advisers; and providing clarity regarding fees, conflicts and "other material matters."