SEC Commissioner Hester M. Peirce urged critics “to take a fair look” at what Regulation Best Interest (“Reg. BI”) says before “proclaim[ing] it a success or failure.” She expressed the “agency’s commitment to monitor the [new rule] to ensure that investors in all income and wealth brackets are able to choose either a broker-dealer or an investment adviser.”
In a statement at the Open Meeting on Reg. BI and Related Actions, Ms. Peirce emphasized that there is more work to be done to ensure that the regulation helps investors without inflicting an unnecessary regulatory burden on broker-dealers. She asked firms to keep the SEC informed of any challenges or issues that arise throughout Reg. BI’s implementation. For example, Ms. Peirce raised concerns about small firms and broker-dealers who may be forced to change their names or registration status as a result of Reg. BI.
Ms. Peirce cautioned that the “very ambitious” compliance period will require firms to start their implementations immediately. Ms. Peirce said that the SEC should monitor Reg. BI’s implementation to ensure that, among other things, it does not exacerbate the trend of declining broker-dealers.
Additionally, Ms. Peirce noted improvements in the final Form CRS Relationship Summary and suggested ways to make disclosures more accessible. Specifically, Ms. Peirce encouraged the SEC to utilize online platforms and move away from paper-based documentation.
STEVEN LOFCHIE’S THOUGHTS…
Commissioner Peirce’s statement, while strongly in support of Reg. BI and the related rulemakings, nonetheless raises the issue as to whether the new requirements put further downward pressure on the full-service broker-dealer business model for retail investors. While it is certainly important for the agency to monitor the implementation process, and then determine whether the rule is properly calibrated to preserve the full-service business model, the practical reality is that if the rule has gone too far and materially damages the model, the damage done will likely not be reversible. It will take years of watching for the SEC to make any judgment as to the effect of Reg. BI on the full-service model (and any such judgment will be inherently subjective) and then it would take years more to make any rule revision. Businesses are much more easily destroyed than they are created.