What Does the SEC’s New Interpretation of the Investment Adviser Standard Mean for Us?

Raffaele Riva
Jun 13 · 3 min read

Last week the Securities and Exchange Commission, or SEC, approved a controversial new standard that has many financial advisers and others in the finance industry concerned about what this will mean to their clients and how it will affect their overall marketing standards.

Most concerning to industry leaders is the confusion over how much fiduciary duty to their clients financial advisers still retain. Democrat Robert Jackson, Jr., who is the SEC commissioner and the only individual on the SEC who voted against this new package, clearly stated in a lengthy 41-page report following the vote that he believed these new rules no longer ensured that financial advisers put the needs of their client’s first. He believes that the rules have been weakened and that this could shake the finance industry. Moreover, he purported that this new wording clearly goes against the SEC’s proposal from last year that stated the opposite. The fear today among many industry leaders is that financial advisers may now be able to put their own interests over those of their clients, tainting the high fiduciary standard that they had set for themselves in the past.

Other strong voices have also risen up against the new regulatory package. Rick Fleming, who is an investment advocate for the SEC, spoke out against this package, stating that these new rules weaken previous rules. He was most concerned about the change in wording from a positive statement saying that investment advisers must put the interests of their clients first to the newer and more negative wording forbidding advisers from subordinating their clients’ interests to their own. Brian Hamburger, who is CEO of MarketCounsel, also sides with those who have criticized the new rules, stating that the law now sides with the financial adviser rather than with the client. Legally, the financial adviser will no longer have to prove that he or she has put the client’s needs first.

However, the CEO of the Investment Adviser Association, Karen Barr, believes that the opposite is true. She states that the SEC has changed its wording and definitions over the years but that financial advisers still understand across the board that they must put their client’s needs and interests over their own. In her mind, although the wording has changed, the ultimate meaning of the language remains the same. To back up this claim, she highlighted new phrasing from the current SEC package that delineated how disclosure and consent on their own do not make up the entirety of an adviser’s duties in protecting his or her client’s interests.

This new package came as the SEC works to clear up rules surrounding financial advisers while it also works with its Regulation Best Interest rules that set the standards for financial brokers. Advisers and brokers will continue to fall under separate and distinct regulations. However, those unhappy with this new package say that the SEC is lumping advisers and brokers beneath the same regulatory umbrella, making it more difficult for advisers to market their services as client-centric. Instead, some fear that advisers will be seen in much the same light as brokers are, making it increasingly difficult for clients to trust the advice that they get from their financial advisers. Although there will always be some conflict between an adviser’s interests and the advice that he or she gives, the new wording in the SEC’s regulations significantly raise this potential for conflict.

Raffaele Riva

Written by

Angel Investor based in London and New York. Into all things investment, tech, film and family.