Commissioners at the Securities and Exchange Commission, in a 3-1 vote, approved a standards-of-conduct package Wednesday.
The commission's three Republican members, including Chairman Jay Clayton, voted in favor of each of the package's four provisions. Robert Jackson Jr., the commission's lone Democrat, dissented each time.
The package, commonly known as Reg BI, features a best-interest standard that compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts. Currently, brokers are subject to a suitability standard that means they must provide advice that is merely suitable to their clients' situations. Critics, including Mr. Jackson, say the proposal is too ambiguous and does not establish a legally enforceable standard. The other commissioners and SEC staff who spoke Wednesday disagreed.
The client relationship summary, or Form CRS, requires firms to 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.
Moreover, a standard of conduct for investment advisers says that advisers have a duty to act and provide advice that is in the best interest of the client.
Lastly, the package includes an interpretation of "solely incidental" — which references a provision in the Investment Advisers Act of 1940. The provision exempts broker-dealers giving investment advice from registering under the Advisers Act if their advice is "solely incidental" to the conduct of their business as a broker-dealer and they don't receive "special compensation" for the advice.
In his opening statement Wednesday, Mr. Clayton said the package is designed to enhance the quality and transparency of the financial professional-retail investor relationship. "Broadly speaking, these rules and interpretations address the obligations of broker-dealers and investment advisers when they provide investment advice and services to our Main Street investors," he said.
But Paul Smith, president and CEO of the CFA Institute, said in a statement that the package sets "the investor protection clock back to 2008."