Statement of PIABA President on NASAA’s Phase II Report on Regulation Best Interest

Michael S. Edmiston

PIABA appreciates the work that NASAA has been doing to first benchmark and then examine the impact Regulation Best Interest has had on brokerage firm practices. NASAA’s Phase II Report disappointingly showed that Regulation Best Interest has not improved the standards of conduct. The very set of rules the brokerage industry supported are now being ignored.

Unsurprisingly, firms continue to place their interests ahead of their customers. The Report demonstrates that many firms have not changed their policies, procedures, and practices in the areas of due diligence and care, disclosure, or conflict management. The Report concludes that firms are not providing “fair and balanced point-of-sale disclosures regarding fees, costs, and risk to retail investors.”

The Report also concludes that firms continue to offer complex, costly, risky products to investors even when more appropriate options are available. Some firms have increased their participation in complex, costly, risky products.

Investors need greater protections than they presently are receiving under Regulation Best Interest. It is incumbent upon the SEC to offer clearer guidance as to what is expected of firms and what conduct is unacceptable.

It is also time for the SEC, the states, and FINRA to bring enforcement actions against those firms which, a year in, have not yet implemented any changes to their policies, procedures, and practices.

PIABA is ready to work with the SEC, NASAA, and FINRA to improve Regulation Best Interest so that it accomplishes what its name suggests – that brokers will actually act in investors’ best interests and stop putting their own financial interests ahead of investors’.