SIFMA Proposes Best-Interests Standard for Broker-Dealers

SIFMA President and CEO Kenneth Bentsen announced a proposed best-interests standard for broker-dealers who serve retail clients. According to Bentsen, SIFMA's proposed best-interests standard is a feasible regulatory response to the DOL's proposed rule relating to the definition of fiduciary under ERISA and Section 4975 of the Code.

SIFMA stated that for over six years, it has strongly supported FINRA and the SEC's efforts to establish a uniform best-interests standard. According to SIFMA, whenever the DOL considers the adoption of a best-interests standard, that standard should be consistent with a prospective FINRA/SEC standard.

In the announcement, SIFMA clarified that a best-interests standard should:

• apply across all investment recommendations made to individual retail customers regarding all brokerage accounts and not just IRA accounts;

• serve as a benchmark for, be consistent with, and integrate seamlessly into the SEC's uniform fiduciary standard that ultimately will emerge under Dodd-Frank, Section 913;

• provide interim, strong and substantive "best interests" protections for retail customers; and

• follow the traditional securities regulatory approach of establishing a rules-based heightened standard that includes robust disclosure and examination, oversight, and enforcement by the SEC, FINRA and state securities regulators, as well as a private right of action for investors.

SIFMA extrapolated that this new standard could be articulated through amendments to existing FINRA rules. It also provided a markup of these rules and stated that the markup "outlines the broad contours of how a best interests standard for broker-dealers might be developed as part of the path forward on this most important investor protection issue."

See:SIFMA's Proposed Best Interests of the Customer Standard for Broker-Dealers; Mr. Bentsen's Speech; SIFMA Press Release. Related news: FINRA and SIFMA Executives Discuss Labor Proposal and the Best-Interest Standard for Broker-Dealers (May 27, 2015); U.S. Department of Labor Issues Proposed Rule Regarding Fiduciary Definition (April 14, 2015).