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No Data That Reliance on Best Interest Rule Will Prevent Harm to Workers and Retirees

WASHINGTON, D.C. (September 3, 2020) – While noting that it shares the Department of Labor’s goal of improving investment advice for millions of American workers and retirees, the North American Securities Administrators Association (NASAA) today urged the department to defer steps to finalize its proposed fiduciary rulemaking until it has had the opportunity to gauge the effectiveness of the U.S. Securities and Exchange Commission’s Regulation Best Interest.

In July, the Department proposed a prohibited transaction exemption for investment advice fiduciaries that would provide broader relief than existing exemptions. Noting that American workers should be given “a fighting chance to have a secure retirement future,” Ohio Securities Commissioner Andrea Seidt urged the Department not to move forward on its proposed rulemaking until it has a factual record validating the effectiveness of the SEC’s approach. “There is no such data at this time,” she said in testimony before the department’s Employee Benefits Security Administration.

During her testimony, Seidt, who also chairs NASAA’s Regulation Best Interest Implementation Committee, provided new data based on a comprehensive benchmarking initiative by state securities regulators, against which the effectiveness of Regulation Best Interest will be measured. Examinations were conducted of more than 2,000 broker-dealer and investment adviser firms representing more than 360,000 investment professionals and 68 million retail investment accounts. The examinations were designed to establish a baseline of practices as they stood in 2018 in several areas, including sales of complex and risky products, compensation practices, including sales contests, cost comparison, fee disclosure and conflict management.

“This data, along with the data that the Department and others collect prospectively regarding the quality of advice offered under Reg BI, will help the Department assess whether reliance on Reg BI is supported by the evidence,” Seidt said.

A full report on the examination findings will be released by NASAA later in the month, however, Seidt provided several highlights of the report’s findings. Notably two-thirds of examined firms did not offer complex, costly, and risky products like private securities, variable annuities, non-traded REITs, and leveraged or inverse-ETFs. These products are perennial sources of investor complaints. However, when these products were sold, broker-dealers were twice as likely as investment advisers to recommend the purchase of leveraged and inverse ETFs, seven times as likely to recommend private placements, eight times as likely to recommend variable annuities, and nine times as likely to recommend non-traded REITs.

“It is too soon to know if Reg BI will narrow these gaps and bring BDs closer to fiduciary practices more aligned with customer interests. If the regulation works as intended, this is exactly what should happen,” Seidt said, noting that state securities regulators will conduct follow-up examinations next year to assess the effectiveness of Regulation Best Interest. Commissioner Seidt’s remarks are available on NASAA’s website,

For More Information:

Bob Webster | Director of Communications

Noelle Lane | Communications & Outreach Specialist