SEC Commissioner Hester M. Peirce criticized the SEC's proposed Regulation Best Interest and recommended a simpler standard of conduct for broker-dealers. Ms. Peirce expressed skepticism as to the "Client Relationship Summary" in the form as proposed, but supported the concept of a document (or some other media presentation) that would serve to educate an investor as to a relationship with their broker. The Commissioner's comments were consistent with her earlier remarks when the proposal was approved for public comment by the SEC.

Ms. Peirce disapproved of the SEC's use of terms such as "best interest" and "fiduciary," arguing that while such terms were politically appealing, there was no common understanding as to what they require in the context of a broker-dealer's obligations to its customers. She also expressed concern that imposing undue obligations on broker-dealers selling securities to customers inevitably would result in more firms deregistering as broker-dealers and becoming investment advisers, and consequently charging asset or account fees (rather than transaction fees), which, in turn, would likely result in higher costs to investors.

Ms. Peirce argued that the standard imposed on broker-dealer sales conduct should not be referred to as a "best interest" standard, given that "nobody can explain what it means." Rather, she endorsed building on the current "suitability standard," saying that it "has teeth and has been effective." Finally, she emphasized that any obligations ultimately imposed on broker-dealers should be stated in the rule text and not implied through language in the rulemaking release.

Commentary / Steven Lofchie

Since becoming Commissioner, Ms. Peirce has been a strong voice for weighing the costs of regulation along with its benefits. Regulation Best Interest is likely to discourage firms from providing low-cost brokerage services to retail customers (the regulatory obligations seem inconsistent with the transaction fees that brokers can reasonably charge). The result of this is that retail customers must either do without any personal interaction with a financial professional or pay up for investment advice that may be significantly more expensive than transaction fees would be. See generally Choose One: Best Interest or Full Service.

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