Getting it Right

SEC's New Rule Protects Investors While Preserving Choice

Like many in the wealth management industry, I've been watching, speaking and writing about the Securities Exchange Commission's Regulation Best Interest Rule for some time (most recently for Financial Planning, Investment News, The Wall Street Journal and Bloomberg TV). Now that the rule has been approved and published in final form, you can put me squarely and unequivocally in the camp of those who believe it represents one of the most significant milestones in the past decade along the path to restoring individual trust and confidence in financial markets and financial advisors. 

Protecting Investor Interests and Choice

The beauty of Reg BI is that it offers a solution to an equation no one had been able to solve in the years since the Dodd Frank gave the SEC authority to so a decade ago. It simultaneously raises the bar for investor protection while preserving individual investors' ability to choose who they work with (what kind of advisor), what products and services best fit their individual and family situations, and how they pay for those products (with commissions or fees or a combination of the two). 

It does so by explicitly rejecting a one-size-fits-all approach to wealth management. As SEC Chairman Jay Clayton stated in his opening remarks, "a one size fits all approach to regulating BDs (broker dealers) and RIAs (registered investment advisors) doesn't work because BDs and RIAs have inherent differences". 

A Higher Standard of Care

Reg BI, in its final form, means we will never have a "uniform" or "harmonized" standard of care across retirement accounts, advisory accounts and brokerage accounts, which was the somewhat utopian vision behind so-called "fiduciary standard" provisions of the Dodd Frank Act. 

But what we do now have – for the first time in our lifetimes – is a clear regulatory principle and standard of client care consistently present (if differently implemented) across all activities that financial advisors engage in on behalf of their wealth management clients: The requirement that they put their clients' interests first. 

Hard to believe it has taken this long and been this difficult to get to this point. 

Reg BI has many vocal critics. But I honestly believe this rule is a win for everyone. For individual investors and their specific needs. For advisors and their ability to serve their wealth management clients. And for the underlying optimism that necessarily underpins the act of investing one's hard earned savings in financial markets – the belief that tomorrow can and will be better than today.