CMFI Submits Comment Letter on Regulation Best Interest

In its proposed Regulation Best Interest, the SEC is to be commended for its overall goal of improving the standards of conduct for broker-dealers from the existing suitability standard.  However, the Commission's proposal--outlined in more than 1,000 pages of regulatory verbiage--is only going to confuse further the average individual investor, especially regarding their choices between a broker-dealer and a registered investment adviser.  And the proposed "best interest" standard of conduct for broker-dealers is not rigorous enough to protect individual investors who are seeking investment advice.

 

For some reason, the SEC avoided the simplest answer to this problem, which is to use more fully the excellent regulatory framework of the Investment Advisers Act of 1940.

 

In a comment letter filed with the SEC, the Coalition of Mutual Funds (CMFI) advocates that the SEC require all broker-dealers to register as investment advisers if they: (1) provide personalized investment advice about securities to retail investors on an ongoing basis; or (2) receive asset-based compensation or third-party fees from mutual funds and/or their advisers.  Approaching this problem based on function, instead of current business models, is going to be the only effective way to improve the current system and provide the level of protection that individual investors deserve.

 

You can review the CMFI comment letter to the SEC here.