SACRAMENTO, Aug. 8, 2018 — California Attorney General Xavier Becerra today joined a 17-state coalition criticizing proposed rules issued by the Securities & Exchange Commission (SEC) which falsely claim to protect savers, but in fact leave them vulnerable to financial advisors who put their profits ahead of the best interests of their saver clients. The proposed rules fall short because they fail to impose a uniform fiduciary standard, rely too much on disclosure instead of preventing conflicts of interest, and leave key terms ambiguous and undefined. In a comment letter, the coalition argues that the SEC’s own study recommended imposing a uniform fiduciary standard for investment advisers and broker-dealers. But the newly proposed SEC rules instead employ a weaker standard for broker-dealers. That standard allows broker-dealers to collect compensation incentives for directing savers toward particular investments that may actually pose a serious c onflict with the best interests of the saver.
“Hardworking Americans saving for retirement deserve better than being left out in the cold by the SEC,” said Attorney General Becerra. “These toothless rules will only empower brokers looking for profit at the expense of savers and their retirement earnings. Just a decade ago, millions of Americans had their savings wiped out or threatened because of the irresponsibility of Wall Street. At the California Department of Justice, we will fight to protect retirees and their hard-earned savings.”
The SEC issued three proposals purporting to strengthen investor protections. The centerpiece of these proposals is Regulation Best Interest, which supposedly requires broker-dealers to act in the best interests of their retail customers, although it leaves unclear what this means – except that it allows conflicts of interest to continue. The SEC has also proposed a revised disclosure document for financial advisors, to explain the nature of financial advisory relationships, fees and conflicts of interest. The comment letter, led by New York Attorney General Barbara Underwood, points out that the SEC proposals are weaker than those under the Fiduciary Rule proposed by the Obama Administration’s Department of Labor, and unlike the Fiduciary Rule, do not give savers a right to go to court to enforce a broker’s duties.
The Fiduciary Rule, proposed in 2016, enshrined into federal law commonsense standards for professionals who give investment advice to people saving for retirement. On March 15, a three-judge panel of the Fifth Circuit Court of Appeals issued a decision overturning the Rule. The SEC issued the new proposed rules on April 18. A week later, Attorney General Becerra led a coalition filing a motion to intervene in Chamber of Commerce of the U.S.A. v. U.S. Department of Labor in order to defend the Fiduciary Rule. In May, Attorney General Becerra appealed the Fifth Circuit’s decision to deny the motion to intervene and vacate the F iduciary Rule, which will cost hardworking Americans saving for retirement tens of billions of dollars.
A copy of the comment letter is available here.