SEC Reg BI's Economic Analysis Too Weak, Will Face Legal Challenges: SEC's Jackson

"We did not make any serious attempts to understand the costs and benefits for investors" of the rulemaking, Jackson told attendees.

In comments to reporters on the sidelines of the event, Jackson said that "my own view in what we have right now [in terms of economic analysis] will not stand up" on both Reg BI and on the Customer Relationship Summary form, or Form CRS.

Jackson continued: "The reason we're doing Reg BI is because conflicted advice costs investors money.… We made no attempts to assess those costs. I can't imagine a serious judge looking at the economic analysis and upholding it on a cost-benefit challenge."

"If the goal here is to set a standard that is sustainable, that will hold up, and that won't lead to more lobbying and litigation, I think we have a lot more work to do."

At this point, Jackson stated, the agency "could get to a final [rule] without the need for a re-proposal. We just need to do more work.…"

"If the [economic] analysis is not up to snuff, you're basically giving the market a call option on striking down the rule. I think the whole point of Reg BI is to enter the space and settle the debate about the duties owed to American investors. And to the degree that industry retains a call option to get it struck down in the D.C. Circuit, I don't think that goal has been achieved."

The best-interest standard, Jackson added, "has to be clearer. The standard says the broker-dealer can't put their interest ahead of the client. That's a bit of a contorted sentence, it's hard to understand, even for me, I've read it a few times now. I don't understand why don't we just say what everyone says the law should be, which is 'your duty is to put investors first.'"

As to whether SEC Chairman Jay Clayton will get the three votes he needs on the three-pronged plan, Jackson stated, "I will continue to fight and make every effort to give the chairman the opportunity to have a bipartisan rule. I think that's best for the marketplace, it's best for the commission and it's best for investors."

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