The Securities and Exchange Commission’s Regulation Best Interest came under legal assault
in early September when two separate
lawsuits were filed challenging the rule’s
validity. More challenges are likely on the
way, at least one attorney predicts.
Seven states along with the District
of Columbia filed a suit in the Southern
District of New York on Sept. 10 against
Reg BI for failing to institute a uniform fiduciary standard and “meet basic
investor protections” that were laid out
in the Dodd-Frank Act.
The same day, XY Planning Network
(XYPN), co-founded by well-known
industry planner and blogger Michael
Kitces, also filed a lawsuit challenging
broker-dealers’ ability to deliver com-
prehensive financial planning services
under the rule.
With Reg BI, “the SEC is choosing
Wall Street over Main Street,” said New
York Attorney General Letitia James,
who’s leading the coalition of AGs, in
a statement. “Instead of adopting the
investor protections of Dodd-Frank, this
The other attorneys general hail
from California, Connecticut, Delaware,
Maine, New Mexico, Oregon and the
District of Columbia.
The states also maintain in their suit
that Reg BI adds to investor confusion
about the regulatory requirements broker-dealers are held to versus those of
In its suit, also filed in the Southern
District of New York, XYPN argues that
under the SEC’s so-called “best inter-
est” rule, “a broker-dealer is permitted
to take into account its own personal
interests in providing recommendations
and advice to investors on how to invest
their life savings. This new rule means
that broker-dealers may maintain harm-
ful conflicts of interests while being able
to market themselves as trusted advisers
acting in their client’s best interests.”
Kitces, XYPN’s co-founder, told IA that
“We think the court would have to vacate
Regulation Best Interest or, alternatively,
if the SEC is willing to modify the rule
and state that financial planning advice
is investment advice that is not solely
incidental, that would put Reg BI back in
compliance” with Dodd-Frank.
Said Kitces: “Fiduciary competitiveness is being damaged,” under Reg BI.
As it stands now, Kitces told IA,
XYPN is “not seeking out co-plaintiffs.
If we have standing we can move forward. We are hopeful there will be
amicus briefs filed.”
XYPN also alleges that the SEC exceeded its authority by allowing dual registrants
under Reg BI to use advisor-like titles and
By Melanie Waddell
SEC’s Regulation Best Interest Comes
Industry officials and attorneys weigh in on the two separate lawsuits
filed against the rule.