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Regulation

SEC staff working hard to get Reg BI right, chairman says

SEC Chairman Jay Clayton.

The Securities and Exchange Commission's standards-of-conduct package will protect investors and mitigate confusion in the industry, Chairman Jay Clayton said Thursday.

Mr. Clayton defended the rule-making package in a discussion with Paul Schott Stevens, president and CEO of the Investment Company Institute, at the group's annual membership meeting in Washington.

"There's a large group of people who have come to work every day for two years to get this right," Mr. Clayton said. "Is there a silver bullet? Probably not, there never is."

SEC commissioners advanced the package in April 2018, which has become commonly known as Reg BI for one of its three components, and is expected to be finished by September. One of the three legs requires a client relationship summary, or Form CRS, which necessitates that firms disclose to retail investors the nature and scope of their services, the types of fees customers would incur, the conflicts of interest faced by the firm and the firm's disciplinary history.

The second leg is a proposed standard of conduct for investment advisers that states advisers have a duty to act and provide advice that is in the best interest of the client.

Lastly, Reg BI compels broker-dealers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts. Critics say the proposal does not adequately define the term best interest and wouldn't establish a legally enforceable standard.

Mr. Clayton said Thursday that it is important for the SEC to tackle the issue because there is confusion in the marketplace and financial professionals are "adjusting their behavior in the face of uncertainty."

He also said there is not one particular investment relationship model that's best suited for all investors. "There are some investors who are very much benefited by a commission model," Mr. Clayton said. "They will pay less for the same or better service than those who have a typical AUM-based fee on the investment advisers side. And then there are a lot of people who are on the investment advisers side who feel (the AUM-based fee is) a better service and better value for them."

Mr. Stevens said he looked forward to seeing the final rule in the coming months. "Me, too," Mr. Clayton responded, drawing a laugh from the audience.