Advice to the New SEC Chair: Balance Investor Protection and Choice
Written by Jasmin Sethi for SCA client, Morningstar.
No doubt President Biden’s SEC chair nominee, Gary Gensler, will have many considerations to balance in the coming days as he assesses the direction of future SEC regulation and enforcement. Though this role requires confirmation by the Senate, we expect Gensler to be confirmed and assume his new position in the next few weeks.
In 2020, the SEC took steps to advance both investor choice and investor protection. Now, the new SEC chair will have to determine if the former has gone too far in hindering the latter.
Here are some of the top SEC regulations he will have to consider.
Regulations Driving Investor Protection
We see two main SEC regulations that have the potential to dramatically expand the protections and disclosures available to the retail investor.
Regulation Best Interest. Though Regulation Best Interest was adopted in July 2019 and came into compliance last summer, it will be up to this SEC to put its teeth into Regulation Best Interest with strong enforcement. The new chair will want to focus on SEC and FINRA exams, as well as disclosures in the client relationship summary, to determine whether the rule is sufficiently strong in its current state. The SEC should also pay particular attention to rollover recommendations and whether they tend to end up triggering the Department of Labor Fiduciary rule under the five-prong test (which defines what advice constitutes investment advice). If they do, the agencies should collaborate to give both regulations more teeth. If not, the SEC is on its own in policing rollovers unless and until the new DOL or Congress changes the Fiduciary Rule.
