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SEC adopts Regulation BI in 3-1 vote

Insurance Forums Staff

The Securities and Exchange Commission (SEC) voted in favor of adopting a final amended version of the Regulation Best Interest rulemaking package on Tuesday, drawing praise from the insurance industry.

The commissioners voted 3-1, with Commissioner Robert Jackson Jr., the lone Democrat, dissenting on each of the package’s four provisions: the controversial Regulation Best Interest, the Form CRS Relationship Summary, the Standard of Conduct for Investment Advisers and a new Interpretation of “Solely Incidental.”

The package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products, according to a statement from the SEC announcing the vote.

Individually and collectively, these actions are designed to enhance and clarify the standards of conduct applicable to broker-dealers and investment advisers, help retail investors better understand and compare the services offered and make an informed choice of the relationship best suited to their needs and circumstances, and foster greater consistency in the level of protections provided by each regime, particularly at the point in time that a recommendation is made.

“The rules and interpretations we are adopting today address issues that the Commission has been actively considering for nearly two decades,” said SEC Chairman Jay Clayton. “This rulemaking package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations, while simultaneously preserving retail investors’ access to a range of products and services at a reasonable cost.”

The new regulations are set to take effect June 30, 2020.

Statements from insurance industry groups were quick to follow the vote.


The National Association of Insurance and Financial Advisors (NAIFA) has supported the SEC adopting a regulation requiring financial professionals to work in the best interests of their clients.

As a key party in the lawsuit that struck down a Department of Labor rule that would have imposed a fiduciary duty on professionals providing retirement services and advice, NAIFA has argued that the SEC has the necessary expertise and is the proper authority to regulate financial professionals and establish rules governing their relationships with clients.

“The new best interest standard addresses perceived shortcomings in consumer protection without placing undue barriers between insurance and financial professionals and their clients,” said Kevin Mayeux, CEO of the National Association of Insurance and Financial Advisors. “The higher standard of care preserves the ability of Main Street investors to receive needed products, services, and advice by not favoring one business model over another. It allows them to choose financial professionals who best fulfill their needs and to compensate those professionals in a way that works best for them, whether through commissions or fees.”


American Council of Life Insurers’ (ACLI) President and CEO Susan Neely also voiced her organization’s support of Tuesday’s vote.

“Reg BI strikes the right note—arming people with the information they need to make good purchasing decisions while safeguarding their access to a broad selection of solutions to secure their retirement,” Neely said. “Protecting consumers does not mean limiting their choice of products and services.”

Neely said Reg BI’s principles-based approach is a more sensible and sustainable way to protect consumers than the Department of Labor’s fiduciary regulation that eliminated consumer choice and access to products and services essential to a secure retirement.

According to LIMRA, if the fiduciary regulation had not been vacated by a federal court in 2018, 54% of advisers might have dropped or turned away small investors, resulting in as many as 4 million middle-class Americans losing access to information they want and need.

Reg BI requires financial professionals, when making a recommendation, to act in the consumer’s best interest—with care, skill, prudence and diligence—based on the consumer’s needs and objectives. Broker-dealers must also manage, eliminate or mitigate conflicts of interest and disclose those conflicts of interest and the source of their compensation.

“Reg BI raises consumer protections to a new level,” Neely said. “It builds on current rules to ensure consumers receive professional financial guidance and information that is in their best interest. It’s a rule with real consequences for bad actors who put their own interests above their customers’ interests.”


The Insured Retirement Institute (IRI) issued a statement June 4 saying it will carefully review the final rule in detail when it is available, but offered several preliminary observations based upon the Commission’s proposed regulation. Among them:

  • Reg BI will be a substantial advancement in consumer/investor protection compared to existing law
  • Reg BI will impose significant new regulatory implementation burdens on companies and advisors
  • Reg BI will require companies to evaluate and potentially make significant investments in systems, policies, procedures and training to ensure compliance with new regulations.
  • Additional state regulation is forthcoming as the National Association of Insurance Commissioners (NAIC) advances a parallel regulatory effort to update its current model state law.

“IRI has long supported the principle that financial professionals should be required to act in their clients’ best interest,” said Jason Berkowitz, IRI Chief Legal and Regulatory Officer. “IRI will review and evaluate this extensive new regulation and will work with the Commission to advance toward a new era of enhanced investor protection.”

The National Association for Fixed Annuities (NAFA) also said in a statement that it has been consistently monitoring this standard and its provisions, and will be reviewing the final package in more detail in the days to come.



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