SEC Best Interest v. Fiduciary

On Jul. 30, SEC's Hester Peirce spoke about best interest v. fiduciary.

  • At 2018 NAPA DC Fly-In Forum, Peirce spoke of best interest v. fiduciary duty.
  • Standards debated on intent of words and interpretation applied by BD and IA.


  • Proposed regulation best interestrequires BDs to act in the best interest of the
    retail customer at the time the recommendation is made; identify and disclose
    and mitigate, or eliminate, material conflicts of interest; exercises reasonable
    diligence, care, skill, and prudence, plus reasonable compensation.
  • Fiduciary duty involves duty of care and duty of loyalty to offer advice that is
    in the best interest of the client, seek best execution of a client’s transactions.
  • Brokers are already subject to a best execution obligation under existing rules.
  • Term fiduciary can change over time. DOL did so in 2016 rulemaking.

Main differences

  • Fiduciaries have duty to provide advice, monitoring over course of relationship.
  • BD, absent formal agreement, not required to monitor retail customer’s account.
  • Best interest standard tougher than fiduciary one when it comes to conflicts.
  • BDs under standard must not only disclose but mitigate or eliminate conflicts.


  • Trend in BDs becoming IAs to avoid burden, best interest will exacerbate trend.
  • Difference in substantive meaning slight, similarities abound, to cause confusion.
  • Public understanding of definitions best interest and fiduciaryis they are same.

Simpler Approach

  • Not refer to best interest; rather, include suitability, get customer interest first.
  • Obligations should be imposed by rule text, not in lengthy rule release language.
  • Regime should focus on investor-friendly disclosure to draw in, not repel them.
  • Disclosure should encourage investor ask questions on services, products, fees,
    commissions; SEC encourages feedback on nature of items in new form CRS.

Form CRS

  • Maybe review disclosures already provided to investors to find information
    that is not material to most investors. And is form CRS sufficient here?
  • We might also need the disclosures mandated in regulation best interest.
  • Also maybe modify for multi-media approaches, not just paper-based one.