In a comment letter submitted to the SEC, SIFMA expressed support for proposed Regulation Best Interest and offered recommendations for improvements. The SIFMA letter, which runs over fifty pages, addressed the proposed (i) best interest standard for broker-dealers, (ii) Form CRS ("Client Relationship Summary"), which broker-dealers and investment advisers would be required to provide to investors, and (iii) interpretation regarding a fiduciary standard for investment advisers.

SIFMA asserted that the proposals would enhance existing protections for investors. SIFMA also identified areas that would benefit from "improvement and clarification" and made the following related recommendations:

  • amending the definition of "retail customer," as used in the proposal (where it is defined to include all natural persons), so that it is consistent with FINRA rules (which generally allow for self-reliance by persons with assets of $50 million);
  • adopting a "materiality" standard as to problematic conflicts of interest;
  • allowing broker-dealers to resolve conflicts with customers by making adequate disclosures;
  • providing additional guidance on new disclosure obligations;
  • clarifying how firms are able to satisfy the "care" obligation; and
  • amending the proposed recordkeeping requirements to make them consistent with existing requirements.

SIFMA further suggested various ways to simplify and streamline Form CRS reporting obligations.

Commentary / Steven Lofchie

The SIFMA letter aims to make limited improvements to Regulation Best Interest. Even if all of these improvements were made, it seems an open question whether so-called "full service brokerage" survives as to retail customers (however that term is defined). The concern remains that the industry would move toward a model of brokerage that provides advice only to customers who pay an express fee for a differentiated service and subject to the investment adviser regulatory regime, rather than the broker-dealer regulatory regime which may, as a result of this regulation, be subject to materially greater litigation risk. Perhaps this will prove in the best interest of customers, albeit it would seem at potentially higher costs.

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