Like the stock market, political partisanship is at an all-time high. Case in point; It recently took the Securities and Exchange Commission (SEC), our nation’s protector of investors, 1,363 pages to barely tweak the rules for how financial professionals should treat their clients. That’s about the same length as “War and Peace,” folks!
After a decades-long industry battle, with one camp laser-focused on the goal of imposing a true fiduciary duty on all financial pros, of all stripes, to place their clients’ interests ahead of their own, the big brokerage firms successfully watered down the regulations. The SEC’s final rule is ironically called “Regulation Best Interest.” The result? Brokers and registered investment advisers will continue to operate under a different set of professional obligations to their clients. And, naturally, the general public will remain unlikely to spot the difference.
The new regulation represents the nail in the coffin for Obama’s high-risk strategy in early 2015 to require brokers to avoid and disclose all conflicts of interest and act as a fiduciary to their clients at all times. After all, registered investment advisers have long practiced under those rules. Why did Obama try to push this through the Department of Labor and not the SEC? For years, Congress wouldn’t seat enough board members to the SEC, essentially creating complete institutional gridlock.
The epithet on Obama’s attempt was finally written just last month with a partisan vote to not impose an industry-wide, unified fiduciary standard of care. It only took about three years and heavy industry lobbying to quash his attempt.
What the new Regulation Best Interest means for clients is that consumer confusion will continue. Brokers still will be able to imperceptibly switch professional hats; on one hand acting as simple, middlemen in a financial transaction and, on the other, acting as true fiduciaries to their clients. Rest assured, the color of their hats will be only shades apart.
The SEC is even making registered investment advisers add two additional pages to their already 20-plus page regulatory disclosures. It shouldn’t take two pages, let alone 1,363 pages, to state unequivocally that you have a legal fiduciary duty to always place your clients’ interests first. One short sentence will do.
Of course, just as transparency shines a light on the truth, opacity is the lifeblood of a complex sales process. In many ways, that’s precisely what the SEC was created to guard against. The new Regulation Best Interest simply doesn’t get the job done. Political partisanship certainly did.
It’s once again time for registered investment advisers to take matters into their own hands and loudly beat the drum about their legal fiduciary duty to clients. Now, that is definitely in the public’s best interest!