Sen. Elizabeth Warren (D-MA) was one of four U.S. Senators who took the time to ask FINRA what that organization thought about the Securities and Exchange Commission’s “best interest” proposal – but she seems to have made up her mind.
In a Bloomberg op-ed, “Worried About Wall Street Conflicts? The SEC Isn’t,” Warren leaves no doubt as to her sense of the SEC proposal and its inability to protect Americans from “brokers who are looking out for their own financial interests instead of their clients’.”
Warren calls out the SEC proposal for not defining “best interest” (creating confusion, and leaving open the possibility that “judges and corporate lawyers” will chip away over time), for requiring only that brokers mitigate and disclose conflicts of interest rather than eliminating them, and for not providing specific authorization for investors to sue brokers who violate the best-interest rule in court. “If the people who get hurt can’t sue, the odds of these standards being enforced drop sharply,” she writes.
Warren outlines four main changes that she says will “fix” the “flawed proposal”:
- Make absolutely clear that all financial professionals must act in their clients’ best interest by applying a fiduciary standard to the brokerage industry (as she notes the Labor Department did with the fiduciary rule before “corporate lawyers representing the financial-services industry persuaded a federal court to strike down this rule on technical grounds earlier this year”).
- Explicitly ban what she terms “the most obvious forms of conflicted advice, like sales contests and quotas that encourage brokers and agents to make bad recommendations” and “attack conflicts of interest at their source: the problematic incentives that companies use to push underperforming, money-losing or overpriced products on unsuspecting customers.”
- Not rely on disclosure alone to protect customers.
- Include a strong enforcement mechanism by “allowing investors to sue advisers who scam them” rather than “…force investors to rely on arbitration at the Financial Industry Regulatory Authority — a so-called self-regulatory organization funded by brokers themselves — or enforcement by the SEC, which takes only a few hundred enforcement actions each year.”
“If the SEC doesn’t make these four concrete improvements to its proposal, it will have failed to fix this huge problem" — and with it, failed to substantially “increase[e] investor protections and the quality of advice, as Chairman Clayton once promised he would do,” Warren writes, noting that “Wall Street might be excited about a green light to cheat working families, but it’s a bad sign for consumers.”
