Consumer Group Presses SEC's Gensler to Define 'Best Interest'

"That problem has yet to be rectified," Roper continued. "To correct this central failure of the rule, the Commission must emphasize, first, that the best interest obligation applies, not just to the recommendation of individual securities, but also to recommendations of investment strategies, accounts, and services."

Further, the SEC "must make clear that, to satisfy the best interest standard, brokers must recommend the investments, investment strategies, accounts, and services that they reasonably believe are the best option for the investor from among those they have reasonably available to recommend," Roper explained.

Roper added that "the pool of investments that satisfy a best interest standard in a particular situation should be significantly narrower than the large number of investments that would typically satisfy the FINRA suitability standard replaced by Reg BI."

The SEC's new guidance on the Investment Advisers Act fiduciary standard "is similarly flawed" to Reg BI, Roper contends, as "its fiduciary duty as enforced is more theoretical than real, as it continues to over-rely on disclosure without any evidence that the required disclosures are effective in protecting investors' interests."

Also, the SEC's Customer Relationship Summary, or Form CRS, "does more to obscure than to clarify important differences between brokers and advisers and thus does not support an informed selection among different types of investment professionals," Roper argued.

Labor's New Fiduciary Guidance

Despite their "many flaws," however, Roper said the regs "can provide a framework on which to build a more robust regulatory approach," as the Labor Department recently demonstrated in releasing new guidance on its fiduciary advice rule.

Labor, Roper said, based its prohibited transaction exemption on Reg BI.

"Like Reg. BI, it includes an obligation to act in the best interests of the customer and to have policies and procedures to mitigate conflicts of interest," Roper explained.

With its new guidance, Labor "makes clear that these obligations, properly implemented, can have an impact," Roper maintained.

The guidance makes clear, for example, "that superficial conflict mitigation will not suffice; DOL expects firms to take meaningful steps to rein in conflicts present in their business model and not to create harmful incentives that are likely to undermine compliance," Roper wrote.

It also makes clear, she continued, "that determinations that rollover recommendations are in the best interest of the retirement investor must be based on a thorough analysis, including the long-term impact of any increased costs that may result."

Said Roper: "While much work remains to be done, DOL has shown that it is possible to bring real rigor to these requirements where regulators have the interests of investors at heart and the will to face down industry opposition."