What’s going on here?

• Yesterday, the SEC (Securities and Exchange Commission) okayed a new set of conflict of interest rules for brokers.
• They’re aimed at making brokers act in their client’s “best interest” instead of their firm’s “best interest”…or anyone else’s.

A broker is a person or firm who arranges transactions between a buyer and a seller for a commission when the deal is executed.

How is it implemented?

• The rules require brokerage firms to disclose potential conflicts in
  • a) the fees investors pay
  • b) the commissions brokers earn when they’re doing their thing—giving financial advice on investments in stocks, mutual funds, and more.
• Firms won’t be allowed to hold sales contests or implement quotas that pat brokers on the back when they push certain investment products.

Hot takes

Not everyone’s a fan. Investor advocates think the rules are too negligent. Critics say…

• The regulations don’t go far enough to protect investors, remain too vague, and confuse everyday folks without a Wharton degree.
• Stricter rules from the Obama administration were better, considering the new ones don’t address all investment advice conflicts.

On the flipside …SEC Chairman Jay Clayton said new rules will “enhance the quality and transparency” of financial firms’ offerings and investor communications.

The bottom line

• This is a win for Wall Street. New rules mean brokers will have to reduce their financial conflicts of interest
• … but not eliminate them altogether. Brokers can still recommend products that benefit them, as long as they disclose what they’re doing.
• Households often turn to brokers for advice. How those brokers operate (and what they prioritize) has tangible consequences for the financial wellbeing of tons of people.

Content source: kgrant (2019) The SEC Has Something to Tell You. Morning Brew. Available from: https://www.morningbrew.com/stories/the-sec-has-something-to-tell-you/ [Accessed 12 June, 2019]