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A New SEC Proposal Aims to Protect Investors

The Commission proposes new regulations for financial advisors and dealer-brokers to avoid conflict of interest

While the Department of Labor (DOL) passed a fiduciary rule governing investment advice to retirees in 2016, a federal appeals court struck it down in its entirety in March of this year.

Considered by its advocates to be a positive step in protecting the rights of the elderly, the rule declared that brokers had to agree to a Best Interests Contract (BIC) agreement with their clients before being allowed to earn commissions and other forms of compensation.

In short, the rule meant that financial advisors and institutions had to follow procedures to reduce conflicts of interest between products and transactions paying higher commissions and those that were in the best interests of their retiring or elderly clients.

The impact of this ruling came under scrutiny in a White House memorandum in 2017, which put it under evaluation to explore its economic and legal impact.

Short-lived, but impactful to the market

Although short-lived, the DOL rule had already created some ripples in the market, according to a recent MarketWatch report. In fact, several major companies, such as MetLife, AIG, and Merrill Lynch had already withdrawn portions of their brokerage and retirement investor offerings, while other companies such as State Farm and Edward Jones simply cut back on their product offerings to retirement investors.

SEC intervention: Good or bad?

The Securities and Exchange Commission (SEC) is now proposing its own version of rules and regulations for investment advisors and broker-dealers. This proposal, however, does not focus only on the protection of elderly investors as the DOL rule from 2016 did.

Instead, it broadens its coverage with the intention to establish a rule requiring all registered investment advisors and broker-dealers to act in the best interest of retail customers when making a recommendation of any securities transaction or investment strategy involving securities. “Compliance with this standard would require broker-dealers to comply with obligations that go beyond current suitability standards.”

The SEC proposal invites comments on its contents and the rulemaking process will continue to be monitored. There are advocates and opposition; however, analysts at KBW state that “the SEC’s proposal could be a positive development for the financial services industry because it would ‘create a roadmap’ for how the DOL could revise its 2016 fiduciary rule.”

How might you be impacted by these rulings?

The SEC proposal and the abortive DOL regulation that preceded it are intended to protect investors from financial professionals who may have a financial interest that conflicts with a client’s investment goals.

And if a broker or financial advisor has acted against the interest of you or a family member, they may be in violation of existing Financial Industry Regulatory Authority (FINRA) or SEC rules, such as committing a breach of fiduciary duty or making unsuitable investment recommendations. Essentially, the SEC proposal would heighten the standard for what is considered suitable.

Should you or a loved one require the assistance of an experienced professional to help you evaluate your situation, trust the elder financial fraud attorneys at Silver Law Group. We understand the nuances involved and have helped many people achieve justice or recover lost money through litigation or arbitration. We may be able to do the same for you.

Call us toll-free at 1-800-975-4345 or send us a message through our online form.

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