The SEC Best Interest Rule which is scheduled to take effect on June 30, 2020 is under challenge by seven states (New York, California, Connecticut, Delaware, Maine, New Mexico and Oregon) and the District of Columbia. On September 9, 2018, these states filed a lawsuit in the U.S. District Court for the Southern District of New York essentially trying to void the SEC Best Interest rule. The plaintiffs argue that broker dealers are treated more favorably then investment advisers, and that the rule misleads consumers in thinking that broker-dealers are held to the same stringent rules as investment advisers.
They also claim that the rule makes it easier for brokers to market themselves as “trusted advisers” while still being able to give conflicted advice, and that the SEC contradicted “Congress’s express direction” under the Dodd-Frank Wall Street Reform and Consumer Protection Act to harmonize the standard of conduct between brokers and RIAs.
Here Are Some of the Current Reg. BI Provisions
- Reg. BI now defines “account recommendations” to include recommendations to move assets between different types of accounts or to roll over an employer plan distribution (e.g., former empl0yer 41k plan, PSP, DBP, solo 401k, etc.) to an IRA.
- Broker-dealers must disclose whether they will provide account-monitoring services—and the scope of those services.
- Broker-dealers must adopt policies and procedures designed to “eliminate sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sale of specific securities or specific types of securities within a limited period of time.”
Investment cost considerations are now explicitly required both in a broker-dealer’s Care Obligation and in the Disclosure Obligation.
Broker-dealers must create and enforce policies and procedures that are designed to achieve compliance with all of Reg. BI.
To read more about the SEC Best Interest Rule, VISIT HERE.