SEC headquarters in Washington. (Photo: Diego Radzinschi/ALM)
Industry officials anticipate a little-changed Regulation Best Interest as well as potential lawsuits after the Securities and Exchange Commission approves on Wednesday its controversial Reg BI for brokers, part of the agency's four-pronged advice standards package.
"Litigation is certainly possible after the final rules are adopted," said David Tittsworth, former president and CEO of the Investment Adviser Association who's now an attorney with Ropes & Gray in Washington.
Before lawsuits are filed, however, Tittsworth said he expects "a lot of plain old legal digging — including [of] those all-important footnotes — to try to figure out what the new rules require and what changes will be required by brokers, investment advisors and dual registrants to comply with the new rules."
Word on the street a day before the SEC vote is that Reg BI will be only modestly changed from the proposal floated last April.
"The best we're going to get are some very minor tweaks to Reg BI," Barbara Roper, director of investor protection for the Consumer Federation of America, said on a Tuesday call with reporters.
The SEC "has left itself open to legal challenge, because it has failed to conduct a legal analysis and because it's failed to conduct an economic analysis," Roper stated.
Reg BI "will have a very short shelf life," Roper opined, adding that a change in administrations and a new SEC would reopen the regulation and call for revisions.
Overshadowed by the Reg BI hubbub is the fact that the securities regulator's advice-standards package will also likely include a "dramatically weakened definition" of the investment advisor fiduciary standard, Roper said. The "Advisers Act standard could get worse before the vote."
Michael Koffler, a partner with Eversheds Sutherland in New York, told ThinkAdvisor on Tuesday that broker-dealers will have "a more difficult time adjusting to Reg BI than advisors will" have adjusting to any changes in standards of conduct for them. However, both advisors and brokers will "struggle mightily" with the Customer Relationship Summary, or Form CRS, "unless it's changed dramatically," Koffler said.
Dennis Kelleher, president and CEO of Better Markets, argued on the Tuesday call with Roper that Reg BI "provides meaningless protections for investors, who will be misled into thinking their brokers must act in their best interest, when the rule doesn't actually impose such a duty."
