Regulatory BI has caused quite a stir in the US. Some states are are concerned that the rule isn’t quite enough.
The District of Columbia, plus California, Connecticut, Delaware, Maine, New Mexico, New York, and Oregon recently filed a lawsuit against the SEC via their attorney generals in the U.S. District Court for the Southern District of New York. The claim, as reported by InvestmentNews?
That Reg BI “increases investor confusion around the standards of conduct” while “mak[ing] it easier for brokers to market themselves as ‘trusted advisers’ while still being able to give conflicting advice.”
The states believe Reg BI doesn’t “harmonize the standard of conduct between brokers and RIAS,” which opposes “‘Congress’s express direction under the Dodd-Frank Wall Street Reform and Consumer Protection Act.'”
In the end, the states believe the SEC is falling short of making Reg BI a robust enough rule to really push brokers to act in the best interest of their clients. This is far from the the first time individual states are banding together to push for more (or rather, different) regulation, and instead follows a general trend of states fighting for a change in regulatory standards.
According to the Wall Street Journal, New York Attorney general Letitia James stated, “‘With this rule, the SEC is choosing Wall Street over Main Street. Instead of adopting the investor protections of Dodd-Frank, this watered down rule puts brokers first.'”
While investment advisers earn based on a fixed fee, brokers earn their keep through commission, and Reg BI preserves that earning structure. The WSJ points out that, “While brokers and advisers are governed by two different standards, the industries have significant overlap and many households are confused by the difference between them. Most Wall Street firms offer both account types.”
The American financial services landscape is a diverse one, raising the potentiality of clients being confused as to the legalities surrounding and quality of the financial guidance they are receiving.
