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Is FINRA’s suitability rule on the chopping block?

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WASHINGTON — The SEC’s proposed best interest rule is poised to change how advisors operate, and maybe FINRA too.

“If [Regulation Best Interest] is adopted, then we would need to look at our rule set to see if any changes are appropriate,” FINRA CEO Robert Cook told attendees at SIFMA’s annual conference. “For example, is our suitability rule appropriate? But that is down the road. We need to see how Reg BI is adopted.”

Cook’s comments are the latest example pointing to how impactful the proposed SEC rule could be.

The commission is currently reviewing feedback about Regulation Best Interest that it received during a public comment period. The regulation is intended to update standards of conduct for brokers and advisors.

Fred Duden is global head of product development at Broadridge Financial Solutions.
10h ago
Michael Szlamkowicz is a partner at Hogan Lovells.
11h ago


The SEC proposal would require additional layers of disclosure from brokers and advisors working with clients. And whereas FINRA’s suitability rule requires brokers to recommend a suitable product to meet a client’s needs, the SEC rule requires brokers to act in a client’s best interest.

Fiduciary advocates have criticized the proposed best interest standard for not being strong enough as an investor protection and for having confusing terminology and disclosure requirements. Some have noted that the rule is called “best interest” but does not rise to the level of requiring a fiduciary duty.

Clashes over the Labor Department's fiduciary rule have carried over into the debate on the SEC's proposed regulation.
August 14

Industry trade groups and firms, however, have given the SEC proposal a warmer reception, with many seeing the regulation as easier to implement than the Department of Labor’s now defunct fiduciary rule.

“We worked very hard on making sure the SEC took up a best interest standard, and we’ve seen that come closer to fruition,” SIFMA Chairwoman and Charles Schwab executive vice president Lisa Kidd-Hunt told attendees. “That is something we’ve long supported as an industry.”

SIFMA was opposed to the Labor Department’s fiduciary rule, and was party to a lawsuit that eventually nullified the controversial regulation. FSI, another industry trade group, and the U.S. Chamber of Commerce were also among the plaintiffs that sued the Labor Department.

For his part, Cook emphasized that FINRA works closely with the SEC, and is ready to support the commission as needed.

“If it is finalized — and I have said this before and I do not think this is newsworthy — but part of our mandate is to ensure compliance with SEC rules. Reg BI would be an SEC rule, just like any other,” Cook said.

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