SEC’s ‘Regulation Best Interest’ Respects Investor Choice


Today, the Securities and Exchange Commission approved final rules that comprise “Regulation Best Interest,” which will govern conduct of broker-dealers in their transactions with retail investors. Any new regulation will likely mean higher costs, and these costs—as with the costs of business taxes and tariffs—will likely be passed on to the individual customer. And skepticism is warranted of any mandate that puts the government in charge of deciding what option is in the “best interest” of an autonomous adult, as this regulation purports to do.

Nevertheless, Reg BI, as it is called, will likely be several degrees better than the Obama-era Department of Labor’s “fiduciary rule” in terms of respecting the choices and differing needs of middle-class American savers and investors. That regulation was based on the false premise that most holders of 401(k) and individual retirement accounts lacked the ability, in the regulators’ words in the proposed regulation, to “prudently manage retirement assets on their own” and “distinguish … good investment results from bad.” The Obama rule was mercifully struck down as “arbitrary and capricious” by the Fifth Circuit Court of Appeals last year.

The SEC, by contrast, said in its initial proposal for Reg BI, “We recognize the benefits of retail investors having access to diverse business models and of preserving investor choice.”

Hopefully, the new rules will protect investors from fraud and deception but not prevent them from making the choice of which type of financial professional they wish to deal with. The true “best interest” for middle-class investors is a marketplace that provides truthful information so that investors can choose the financial professionals and strategies they believe work best for them.

My colleagues and I will have to more to say on the new rules as we review them.