8 Attorneys General Sue SEC Over Reg BI

The complaint states that Reg BI "undermines critical consumer protections for retail investors, increases confusion about the standards of conduct that apply when investors receive recommendations and advice from broker-dealers or investment advisers, makes it easier for brokers to market themselves as trusted advisers (while nonetheless permitting them to engage in harmful conflicts of interest that siphon investors' hard-earned savings), and contradicts Congress's express direction."

In Dodd-Frank, the attorneys general stated, "Congress authorized the SEC to draft regulations that would align the standard of conduct for broker-dealers and investment advisers."

The SEC under Dodd-Frank was authorized to impose a uniform fiduciary duty on both, "and require that their recommendations be made 'without regard' to their own interests," the attorneys general argue. "This uniform fiduciary duty would ensure that investors were protected and treated fairly, regardless of the type of financial professional with which they worked."

The coalition of attorneys general argue that the regulation fails to meaningfully elevate broker-dealer standards beyond their existing suitability requirements.

"In fact, the SEC's own professional staff recommended that the SEC adopt the uniform fiduciary standard articulated in the Dodd-Frank Act, but the regulation expressly rejects imposing a fiduciary standard on broker-dealers and, instead, allows them to consider their own interests when making recommendations," the attorneys general state.

Reg BI is likely to produce continued investor and industry confusion "because it relies on a vague 'best interest' standard and leaves key terms undefined," the complaint states.

— Related on ThinkAdvisor:

• Will Reg BI Be Hammered by Lawsuits?
• SEC Reg BI's Economic Analysis Too Weak, Will Face Legal Challenges: SEC's Jackson