Does This New Federal Regulation Really Protect Investors?

Shady adviser
Photo by Just dance / Shutterstock.com

A new federal regulation might help ensure that financial advisers put your interests first when recommending investments. Or, it might fall well short of the protections investors need.

Supporters of the new regulation — known as Regulation Best Interest and passed by the Securities and Exchange Commission (SEC) earlier this week — say it will hold broker-dealers to a stricter standard of conduct, according to a CNBC report.

But critics say the measure falls well short of the protections promised by the fiduciary rule, a regulation that was announced during the Obama administration but scrapped during the Trump administration.

As the SEC explains it, Regulation Best Interest will require broker-dealers “to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.”

Previous to the new regulation, broker-dealers were only required to make investment recommendations that were “suitable” for clients.

A broker-dealer is “a person or company that is in the business of buying and selling securities — stocks, bonds, mutual funds, and certain other investment products — on behalf of its customers (as broker), for its own account (as dealer), or both,” according to the Financial Industry Regulatory Authority (FINRA).

The SEC commissioners passed Regulation Best Interest by a 3-1 vote. They also adopted related measures, including a requirement that investment advisers and broker-dealers issue a new relationship summary form to customers that includes information about:

  • Services
  • Fees and costs
  • Conflicts of interest
  • Legal standard of conduct
  • Whether a firm and its financial professionals have a disciplinary history

Critics say Regulation Best Interest does not go far enough in eliminating commission-based pay and other arrangements that amount to a conflict of interest for financial advisers.

In particular, critics charge that the new regulation falls short of the scrapped fiduciary rule, which would have established strict rules for putting clients’ financial interests first when giving retirement account advice.

Regulation Best Interest and the new relationship summary form requirement will take effect 60 days after they are published in the Federal Register, an action that formally establishes federal regulations. But the compliance date for Regulation Best Interest and the relationship summary form is June 30, 2020.

Protecting your money

As we have pointed out previously, at the end of the day, no rule can completely protect you from sharks disguised as financial advisers trying to take a bite out of your investment portfolio.

Fair or not, the responsibility to protect your money is entirely your own. Even if the subject of personal finance bores you to tears, you must educate yourself before putting hard-earned cash on the line.

Fortunately, Money Talks News is packed with stories that can help you learn more about investing, and how to protect yourself when building or preserving a nest egg.

Looking for the perfect place to start? Sign up for our course, “The Only Retirement Guide You’ll Ever Need.” Money Talks News founder and CEO Stacy Johnson teaches this step-by-step guide to retiring on your terms, in a way that makes the most sense for your goals and dreams.

How do you protect yourself from being ripped off while investing? Share your tips in comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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