Ahead of Vote, Leading Investor Watchdog Group Accuse SEC of
Falsely Claiming Reg BI Better for Investors; CFA, PIABA and Better
Markets Warn Mislabeled Proposal is “Step Backwards”
WASHINGTON–(BUSINESS WIRE)–Roughly 24 hours before the Securities and Exchange Commission (SEC) is
set to vote on the so-called “Reg BI” proposal from SEC Chairman Jay
Clayton, the Public Investors Arbitration Bar Association (PIABA) and
Consumer Federation of America (CFA) issued an unusually strongly worded
warning that the proposal will do more harm than good and is being
misrepresented by the SEC. PIABA and CFA were joined by Better Markets
during a phone-based news conference today.
The
PIABA-CFA statement reads in part: “… the final (Reg BI) package
will fall far short of what investors need and deserve. There is a
reason why Wall Street is clamoring for the Clayton plan and why it has
encountered nearly universal opposition from investor advocates. While
the Chairman’s plan is being pitched to the news media and Capitol Hill
as improving protections for retail investors, the truth is that it is
actually a step backwards: It will leave investors with fewer
protections in important areas than they would have had if the
Commission had not acted. If truthfully labeled in terms of its impact
on investors, it would be called Regulation NBI (Not Best Interests).”
In the joint statement, PIABA and CFA caution that the Clayton proposal
will actually REDUCE protections for investors and INCREASE public
confusion about the rules governing broker-dealers and investment
advisers providing investment advice and recommendations to individual
investors. The rules are incorrectly being promoted as an improvement
over current “suitability” standards, when, in fact, they do little more
than codify current FINRA standards.
PIABA President Christine Lazaro, professor of Clinical Legal Education
and director of the Securities Arbitration Clinic at St. John’s
University School of Law said: “The SEC will let investors down with
this regulatory package. In many ways, this is a step backwards.
Investors are being told their brokers will adhere to a best interest
standard, but the brokers will not actually be required to act in their
clients’ best interests. Were this a sales pitch for a public offering
reviewed by the SEC, it would have to be determined to be false and
misleading.”
“These regulations are a betrayal of the Mr. and Ms. 401(k) investors
Chairman Clayton pledged to protect when he launched this rulemaking,”
said Barbara Roper, director of investor protection, Consumer Federation
of America. “Instead of strengthening the protections investors
receive when they rely on brokers for investment recommendations, they
will weaken the protections that apply when investors turn to investment
advisers for advice. Congress gave the SEC all the authority it needs to
adopt a strong, pro-investor standard for brokers and advisers, and the
Chairman made a deliberate choice not to use that authority.”
Dennis Kelleher, president and CEO, Better Markets, said: “If a
truth-in-labeling law applied to the SEC, then this rule would be called
the ‘Broker Profits First, Investors’ Best Interests a Distant Second.’
This anti-investor rule sets a standard of care for brokers that
isn’t much different than the ‘say anything’ practice followed by too
many used car salesmen. The rule provides meaningless protections
for investors, who will be misled into thinking their brokers must act
in their best interest, when the rule doesn’t actually impose such a
duty. The disclosure requirements that go with the final rule
remain untested and hopelessly confusing, and they could never
adequately protect investors. It is a sad day in America when the
agency that exists to protect investors decides instead to protect
industry profits above investors’ best interests.”
The following are among the key “Reg BI” deficiencies outlined by PIABA
and CFA:
-
The standard will not actually require brokers to act in their
customers’ best interest. -
The standard will not prevent brokers from placing their own interests
ahead of customers’ interests. Brokers will continue to be permitted
to have conflicts that threaten their ability to act in a customer’s
best interests. -
The standard will apply on a transaction by transaction basis
regardless of the nature of the relationship between the broker and
customer. Brokers will not be required to monitor customer accounts to
ensure investments remain on track, something that most investors
reasonably expect their brokers to be doing. -
Investment Advisers will be able to satisfy the standard through
disclosure alone, allowing them to place their interests ahead of
their clients’ interests. -
The disclosures will be confusing and will not help investors make
informed decisions.
For the full text of the joint PIABA-CFA statement go to http://bit.ly/PIABACFA.
ABOUT THE GROUPS
Public Investors Arbitration Bar Association is an international,
not-for-profit, voluntary bar association of lawyers who represent
claimants in securities and commodities arbitration proceedings and
securities litigation. The mission of PIABA is to promote the interests
of the public investor in securities and commodities arbitration, by
seeking to protect such investors from abuses in the arbitration
process, by seeking to make securities arbitration as just and fair as
systemically possible and by educating investors concerning their
rights. For more information, go to www.piaba.org.
The Consumer Federation of America is an association of more than 250
national, state and local consumer organizations founded in 1968 to
advance the consumer interest through research, advocacy, and education.
For more information, go to www.consumerfed.org.
CAN’T PARTICIPATE? A streaming audio
replay of the news event will be available on the web at www.piaba.org
as of 5 p.m. ET/4 p.m. CT on June 4, 2019.
Contacts
Max Karlin, (703) 276-3255
[email protected]
