rule that is too weak to protect investors.”
REG BI HARM
Added Roper: “Whether in the short
run, as a result of this lawsuit, or in a
future administration, the rule will need
to be scrapped and extensively revised
to provide investors the protections they
need and deserve.”
Susan Neely, president and CEO of
the American Council of Life Insurers,
argued in a statement, however, that
the attorneys general challenge “misses
the mark. Reg BI is consistent with the
Dodd-Frank Act’s mandate requiring
the SEC to review investment advice
standards and develop better rules, if
necessary, to protect consumers.”
Attorneys for Bates Research noted in
a recent notice that the states argue in
their lawsuit that Reg BI causes eco-
nomic harm “due to lower tax revenues
as a result of the diminished value of
investment and retirement accounts
beset by conflicts of interest.”
XYPN, meanwhile, argues that Reg
BI presents “a significant threat” to its
business and to the businesses of its
members in two ways.
First, XYPN’s business model depends
“in substantial part” on financial planners having an incentive to register as
RIAs. By failing to impose a standard
of conduct for broker-dealers that is
the same as the standard for advisors,
“as required by Dodd-Frank section
913(g), the SEC’s rule reduces the likelihood that broker-dealers will register as
investment advisers, resulting in a loss of
business for XYPN,” the lawsuit states.
Second, the SEC’s rule “poses a competitive threat” to XYPN’s members.
“In subjecting broker-dealers to a
lower standard of conduct than RIAs,
the rule allows broker-dealers to pursue
their own financial interests even when
providing the same financial-planning
services as RIAs, while also reducing
their legal exposure,” the lawsuit states.
The rule does so “while using the label
‘best interests’ to refer to the lower standard of care applicable to broker-dealers,
making it more difficult for RIAs to differentiate the fiduciary duty they owe—
and their own ‘best interests’ standard of
conduct—from the duty owed by broker-dealers under the rule,” XYPN argues.
“This results in a competitive
disadvantage to XYPN’s members, who
sign a fiduciary oath to act in client’s
Washington Bureau Chief Melanie Waddell can
be reached at firstname.lastname@example.org.
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