'Best interest' could be used to mislead investors, says regulator

'Best interest' could be used to mislead investors, says regulator

In June, Canada’s investment regulators decided to forgo implementing a best-interest standard, choosing instead to propose targeted policy changes. The decision rankled advocates who argued that a mandate to protect investor’s best interests would result in better protection.

That may be true, and things could have played out in that direction. But there’s a flip side to that scenario: once a best interest standard pushes through, clients could take it for granted.

That was the concern aired by Hester Peirce, commissioner at the US Securities and Exchange Commission (SEC), at a forum of the National Association of Plan Advisors in Washington, DC. As reported by Financial Advisor IQ, Peirce said that a best interest standard could be used as a marketing tool to attract and potentially deceive investors.

“[T]he best interest standard suffers from the same problem the fiduciary standard does,” she said. “[It is] a term that is wonderful for marketing purposes, but potentially misleading for investors.”

Peirce explained that the word “fiduciary” has been used to lull investors into not asking questions about their financial professional. In a similar way, the term “best interest” could lead people to just count on their best interest being taken care of without asking any critical questions.

In April, Peirce and two other SEC commissioners voted to move a proposed Regulation Best Interest Package forward. She held certain reservations, however, including a suggestion that the proposed standard might be better described as “suitability plus.”

Despite “how nice [best interest] sounds,” she contended, there are still questions as to what the term actually means. If it were up to her, Peirce said, she “would not refer to the standard as, or include within the standard, the term best interest.”

If the term “best interest” is retained, she added, regulators, brokers, and advisors must “make an effort to encourage investors to look beyond nice terms to the substance of what their financial professional is doing – or not doing – for them and how much she is charging.”


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