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.
- 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.
- 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.
- 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.