In a public comment letter to the SEC, ICI called for the the best-interest standard of conduct to be applied to SEC-registered brokers to supplement current suitability obligations of Financial Industry Regulatory Authority (FINRA) Rule 211, which requires a “reasonable basis” in order to recommend a transaction or investment strategy to a customer that involves securities.
“We urge the SEC to coordinate closely with DoL so that DoL explicitly recognizes the best interest standard of conduct in a new, streamlined prohibited transaction exemption for financial services providers that are subject to an SEC-governed standard of conduct,” the ICI letter stated. “…(We) recommend that investment advisers remain subject to their existing fiduciary duty.”
SEC should also ensure that brokers exercise “diligence, care, skill and prudence” in making recommendations to investors, the letter continued, and that brokers receive “only reasonable compensation, provide specific disclosures about their services, and are prohibited from making misleading statements.”
Separate public comment letter to the DoL, meanwhile, ICI called for the implementation of the new, streamlined prohibited-transaction exemption in fiduciary rulemaking for SEC-regulated financial service providers.
The prohibited-transaction exemption would step-up protections for retirement investors, take into account that investors often seek investment guidance for both retirement and non-retirement accounts, and end DoL’s dependence on contractual warranties and private rights of action for enforcement, ICI stated.
“Developing consistent standards that apply to retirement and non-retirement accounts presents a very clear path for reforming and modifying the fiduciary rulemaking,” the letter stated. “A consistent approach will help all investors achieve better financial outcomes, increase efficiency and preserve investor choice and access to advice. It ultimately will better enable financial services providers to deliver holistic investment advice and financial planning services to retail investors.”