SIFMA Proposes Best Interests Standard for Broker-Dealers

by Practical Law Corporate & Securities

Published on 04 Jun 2015 • USA (National/Federal)

The Securities Industry and Financial Markets Association (SIFMA) proposed a best interests standard for broker-dealers that serve retail clients.

On June 3, 2015, the Securities Industry and Financial Markets Association (SIFMA) proposed a best interests standard for broker-dealers that serve retail clients. The proposal comes as multiple regulators, such as FINRA, the SEC, and the DOL consider establishing their own fiduciary standards for broker-dealers.

The proposal states that a best interests standard for broker-dealers should:

Apply across all investment recommendations made to individual retail customers in all brokerage accounts.
Serve as a benchmark for and integrate into the SEC's uniform fiduciary standard that the SEC is required to issue under the Dodd-Frank Act.
Provide interim "best interests" protections that are strong and substantive.
Follow the traditional regulatory approach of establishing a rules-based heightened standard, including robust disclosure, coupled with:
- robust examination, oversight and enforcement by the SEC, FINRA and state securities regulators; and
- a private right of action for investors.

The proposal states that this standard could be set out through amendments to existing FINRA rules and should:

Articulate a legal and enforceable best interests obligation.
Consider investment-related fees as part of the best interests standard.
Avoid or manage material conflicts of interest.
Provide disclosures about material conflicts and investment-related fees to enhance transparency.

The proposal contains a mark-up of existing FINRA rules to outline how a best interests standard for broker-dealers might be developed.

To learn more about the rules governing broker-dealers, see Practice Note, FINRA Supervision Rules.

SIFMA Proposes Best Interests Standard for Broker-Dealers | Practical Law