Brokers may feel they dodged a bullet with the SEC's new proposal for a best interest standard of conduct. After all, the commission avoided tagging brokers with the strict fiduciary duty that governs registered investment advisors.

While financial advisors may breath a sigh of relief that other aspects of the commission's proposal reinforce their well-established fiduciary responsibilities, amounting to minimal disruption in how most firms do business.

But there is still plenty in the proposal for all sides to grumble about.

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There is still plenty in the proposal for all sides to grumble about.

Over the next several weeks, as the SEC collects comments on its proposal for new standards of conduct for brokers, commissioners and staffers can expect to hear an earful from the brokerage and advisory sectors and consumer advocacy groups, who for very different reasons see major flaws in the proposed regulation.

Leading voices from the various sides previewed some of the likely battle lines of the debate in an online presentation Tuesday.

In its guidance for advisors, the SEC is not aiming "to signal some sort of fundamental shift in the understanding" of advisors' responsibilities, said David Tittsworth, counsel at the law firm Ropes & Gray and the former president of the Investment Adviser Association.

But the commission is proposing to require advisors to take on some of the administrative obligations that are familiar to brokers, such as a federal licensing regime and minimum capital requirements, which could create a flashpoint of opposition within the RIA sector.

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"I think there's a very good chance that the advisor community and some of the trade groups that are out there will strongly oppose the broker-dealer elements on various grounds," Tittsworth said. "That's certainly going to be a controversial part of this interpretation."

But the real fireworks will likely come over the SEC's proposal for a standard of conduct requiring brokers to make recommendations that are in the best interest of their retail clients.

Barbara Roper, director of investor protection at the Consumer Federation of America, argued that the SEC's proposed Regulation Best Interest preserves a two-tier regulatory system for advisors and brokers who perform fundamentally similar services, and that it would continue to allow the latter group considerable latitude to engage in practices detrimental to investors.

To the other side, the rule's language addressing how brokers must mitigate or eliminate conflicts of interest borrows too liberally from the Department of Labor's fiduciary rule, a bête noir of the industry that is now in legal jeopardy following the March ruling of a federal court vacating the regulation.

"I think that they did make a mistake in my mind in relying enormously on an invalidated rule which has had very, very adverse effects," said Kent Mason, a partner at the Washington law firm Davis Harman who lobbied on behalf of the brokerage sector against the DoL's rule.

Mason praised the SEC for moving forward with a best-interest standard of advice for brokers — something he said the industry has long supported — but made clear that Wall Street opposition will coalesce around the provisions of the proposal that could get at brokers' compensation models and potentially expose them to legal liability. In other words, the same core arguments leveled against the DoL's framework of a best-interest conflict exemption.

Roper, of course, takes a very different view of the DoL rule, which she saw as an essential investor protection. She disputes the industry claim that it limited access to retirement advice.

On the contrary, she and other consumer advocates expect to press the SEC to shore up its rule proposal by fleshing out what constitutes "best interest" advice and to improve the approach the proposal takes toward the disclosure of conflicts and brokers' obligations around care for their clients.

Roper is not uniformly critical of the SEC's proposal, describing it as a "mixed bag" that is "fixable," but only with significant revisions that would impose greater responsibilities on brokers to act as something more closely akin to fiduciary advisors.

"I think we can safely assume that the brokerage industry and their lobbyists are going to be working just as hard as we are to clarify these exact same points, but to do so in the opposite direction, to ensure that the standard changes as little as possible about this current broker-dealer business model," Roper said.

When the commission could move toward a final rule-making is an open question. There is skepticism that the SEC could finalize such a consequential rule this year. SEC Chairman Jay Clayton prevailed in his bid to initiate the rulemaking by a 4-1 vote, but the three other commissioners who voted in the affirmative did so only after voicing significant criticisms of the rule as written.

Then there was the recent announcement from Commissioner Michael Piwowar that he will retire on July 7, which throws another wrench into the rulemaking process, Tittsworth observed.

"Unless Congress miraculously — and the president and the Senate — gets somebody up and confirmed, finding three votes for any proposal I think will be difficult at best," Tittsworth said. "I'm not convinced that there will be three votes this year, but we'll have to wait and see what happens."