Home & Leisure

Carla Fried: SEC's new rule, despite its name, isn't in your 'best interest'

Carla Fried, on

Published in Home and Consumer News

Just as more households are seeking help managing their finances amid the hardships of the coronavirus recession, the federal government has implemented a new regulation that falls short of protecting consumers.

Beginning June 30 the Securities and Exchange Commission began enforcing its new Regulation Best Interest, commonly known as Reg BI.

Best Interest sounds good. And to be fair, it's actually a step up from the prior low level of accountability brokers had to meet, called the suitability standard.

But Reg BI is still pretty darn weak, and a major step back from a level of consumer protection that had been previously proposed during the Obama administration.

A key element of Reg BI is that it merely requires brokers to disclose conflicts of interest. By mandating disclosure rather than disallowing those conflicts, the SEC has kept the onus on consumers to figure out if they are going to be taken advantage of. How's that in your best interest?

And for the record, oodles of brokers call themselves advisers -- no one says they can't -- so just because someone isn't advertising themself as a broker who earns a living off of commissions doesn't mean that's not how they roll.


The SEC seems aware of the heavy lift that remains for consumers under the new Reg BI regime. An "investor bulletin" from the SEC tied to the launch of Reg BI contains 24 questions it suggests consumers ask before hiring someone. (A web search of "Investor Bulletin: Questions to Ask when Hiring an Investment Professional" will land you at the SEC's laundry list of vetting questions.)

The SEC (during the Obama administration) had indeed proposed a more expansive level of oversight that would have required brokers and advisers overseen by the SEC to act as fiduciaries. A financial pro who acts as a fiduciary is in fact beholden to act in your best interest by avoiding conflicts of interest and always putting the client first.

The financial service industry, led by the U.S. Chamber of Commerce, successfully beat down the fiduciary standard in federal court in 2018, and the Trump administration didn't pursue defending the fiduciary standard further. So, here we are: less protection, not more.

That may soon also be true of someone giving you advice regarding money you have in retirement accounts such as 401(k)s and IRAs. Those tax-advantaged types of retirement accounts must follow rules and regs laid out in federal legislation known as ERISA.


swipe to next page