[author: Lai Lam]
On April 18, the SEC voted, 4-1, to propose two rules and an interpretation related to the standard of conduct for broker-dealers and investment advisers. Under the proposal, registered broker-dealers and investment advisers would be required to provide a brief “client relationship summary” (CRS) to retail investors. Form CRS would include service details, registration status, material conflict disclosures, and a list of key questions that a retail investor should discuss with his or her financial advisor.
Commissioner Kara Stein (D), the sole dissenter, was most critical of the proposed package, calling it “Regulation Status Quo.” In her view, the proposals contain nothing new, as most of the requirements are already in place. She argued that Regulation Best Interest, despite its name, does not actually put the customer’s interests first — given that the proposed rules do not even define what “best interest” means. She noted that broker-dealers under this proposal would only be required to provide “reasonable” disclosure and offer “reasonably” designed policies and procedures to mitigate competing interests and other conflicts. For Stein, the proposal is essentially a safe harbor for broker-dealers and does little to actually protect consumers.
Although a majority of the commissioners voted to approve the proposed rulemakings, they recognized that the proposals are incomplete and will require significant input from the public. The proposed rulemakings are subject to a 90-day comment period after publication in the Federal Register.
