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Buyer Beware! SEC’s New “Regulation Best Interest” Isn’t What You Think


On June 30, a new rule handed down by the Securities and Exchange Commission (SEC) requires financial firms to disclose conflicts of interests and act in the best interest of clients (See:  https://www.sec.gov/rules/final/2019/34-86031.pdf).  While on the face of it this sounds like a great thing, the truth is more complicated. While Certified Financial Planners like me chose to voluntarily and proactively abide by a 2015 Department of Labor (DOL) “Fiduciary Rule” requiring anyone providing financial advice to put clients’ interests first in all cases, many others in the industry chose instead to lobby against this new standard. (Motivated by concerns that the new fiduciary standard would have cost their industry $2.4 billion per year, asset managers like Vanguard and BlackRock led this charge).  As a result, an industry-wide fiduciary standard never saw the light of day, and the SEC moved forward instead with what many see as the weaker “Best Interest” regulation that went into effect June 30.  This regulation, commonly known as “Reg BI”, simply requires that conflicts of interest be proactively disclosed, rather than imposing the stronger fiduciary standard that requires advisors to avoid conflicts of interest and ALWAYS put the interests of clients first. So while Reg BI gives Wall Street room to claim they are doing the right thing by investors, the truth is that the onus remains on clients of financial services to protect themselves by asking the right questions, including:  “Are you legally required to ALWAYS act as a fiduciary in my best interest?” We recommend that you not be fooled by Reg BI and instead do your due diligence to ensure you are selecting a fiduciary advisor who abides by the much stronger DOL’s “Fiduciary Rule.” You should also do careful research to determine a potential advisor’s background, level of experience, and whether or not they derive fees by selling certain financial products.