SEC Chair Jay Clayton reviewed how the proposed "best interest standard" and other rules relating to broker-dealers and investment advisers would address key issues facing retail investors.
Mr. Clayton identified three key issues facing retail investors. First, he stated that SEC studies have shown that retail investors are unclear as to the differences between investment advisers and broker-dealers, including the services they provide and the fees they charge. As a result, he said, investors may choose a professional advisor or account type that does not match their needs and is unduly more expensive. Second, Mr. Clayton asserted that legal obligations that investment professionals owe to their customers are often not in line with what reasonable investors would expect. Investors may be unaware that broker-dealers are not "explicitly required to recommend the security that he or she believes is in your best interest." Last, he said, there is a lack of consistency and coordination among regulators on these issues which causes unnecessary confusion and increased costs for consumers.
Mr. Clayton stated that the SEC proposed "Best Interest" rules address these issues. The rule amendments will (i) enhance disclosure mandates, (ii) require broker-dealers to provide advice to retail investors that is in their best interests, and (iii) further "promote regulatory harmonization" by putting the SEC in a position to work with other federal and state regulators to adopt a consistent approach across a range of investment products.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
