Securities Arbitration Lawyer Blog
As Joe Biden takes his place as the 46th President of the United States of America, House Financial Services Committee Chairwoman Maxine Waters, D-Calif., urges the Biden Administration to rescind Regulation Best Interest (Reg BI).
In a letter dated December 4, 2020, Rep. Waters outlined dozens of Trump-era regulations promulgated during the Trump administration that should be rescinded or replaced by the new administration.
Regulation Best Interest (Reg BI), which went into effect on June 30, 2020, establishes a standard of conduct for broker-dealers and brokers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities. When a broker-dealer makes an investment recommendation, the investor is entitled to a recommendation that is in the investor’s best interest and does not place the interest of the financial professional or financial institution ahead of the retail investors’ interests.
The Securities and Exchange Commission’s (SEC’s) adoption of Regulation Best Interest (Reg BI) drew from the investment adviser fiduciary duty principles. Still, it fell short of this standard of care, applying the “best interest” standard of care only to certain triggering events.
Arguably, brokers and broker-dealers only must act in the customer’s “best interest” at the time of a recommendation (i.e., the recommendation to purchase a security). Stated simply, an investment recommendation triggers the “best interest’ standard of conduct. On the other hand, a registered investment advisor always has to act in the customer’s best interest when providing investment advice because a registered investment advisor is a “fiduciary” to the customer. An investment advisor has a fundamental obligation to act in the customer’s best interest and provide investment advice in the clients’ best interest.
Reportedly, Ms. Waters has criticized the SEC for failing to use Reg BI as a vehicle to deliver a “uniform fiduciary standard”’ that would apply to both broker-dealers and registered investment advisors.
This blog has previously advocated for something similar. Until brokers and brokerage firms have an ongoing fiduciary duty to act in a customer’s best interest, retail investors in the United States will not be adequately protected. All licensed financial professionals that give customers investment advice should have a fiduciary obligation to their customers.
Iorio Altamirano LLP encourages the Biden Administration to rescind Reg BI and replace it with a uniform fiduciary standard for all investment advice-givers.