What you need to know about this new “investor protection” rule

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Further, the agency proposed releasing a new disclosure form that firms can use to detail the relationship investors have with their advisors, as well as new restrictions over who can use the term “advisor” or “adviser” with retail investors.

Associations representing the financial services industry praised the proposed rule.

“Reg BI recognizes that brokerage accounts are the right fit for many investors, where fee-based accounts are not,” said Ira Hammerman, executive vice president and general counsel of the Securities Industry and Financial Markets Association.

Consumer advocates, however, argue that the proposed rule did not go far enough to improve on existing regulations that already applies to broker-dealers and their brokers.

They also say that the SEC hasn’t defined “best interest” within the context of the rule’s language.

“Unfortunately, in its current form, the Commission’s proposed Reg BI does not impose a fiduciary standard and further fails to define the contours of the ‘best interest’ standard,” wrote David Certner, legislative counsel and legislative policy director for AARP, in an Aug. 7 letter to the SEC.

“Absent a fiduciary standard, investors will continue to be vulnerable and will not receive the protections they need and deserve,” he wrote.

Consumer advocates also argue that the rule allows brokers and their firms to disclose their conflicts to customers, rather than eliminating them altogether.

“Instead of taking this opportunity to make the standard live up to its billing, they have essentially adopted this guidance that enshrines their approach to enforcement, which is ‘As long as you disclose it, you’re good,'” said Roper of the Consumer Federation of America.

“The regulation has to be dramatically improved to fully protect retail investors,” said Andrew Stoltmann, an attorney and president of the Public Investors Arbitration Bar Association.

His suggested updates to the regulation include the barring of additional compensation to advisors for selling investors certain investments and an explanation to investors as to why an advisor recommended a more costly product if cheaper options are available.



Source : CNBC