Last week, the Securities and Exchange Commission (SEC) released a new proposed rule on standards of conduct for investment professionals. The proposal arrives amid uncertainty surrounding the Department of Labor (DOL) fiduciary rule, which was struck down by a federal appeals court in March.

The SEC is considering imposing new rules for broker-dealers and registered investment advisors. The proposal would enhance the standard of conduct for broker-dealers, in addition to reaffirming—and in some instances clarifying—the standard for investment advisors.

The Big “I” is currently reviewing the rule. Unlike the DOL rule, the SEC rule should not affect   insurance agents and brokers with insurance-only licenses. However, the rule may restrict the use of the term “financial advisor.”  

Under the proposals, when a broker-dealer recommends a securities transaction or investment strategy to a retail customer, the broker-dealer would be required to act in the best interest of the customer.

The proposal also includes new disclosure requirements, and broker-dealers must establish policies and procedures to mitigate or eliminate material conflicts of interest. The SEC also noted specifically that “certain inherently risky sales practices such as contests, trips, and prizes will merit scrutiny” under any new rule.

The SEC is currently accepting comments on the proposal. 

Jennifer Webb is Big “I” federal government affairs counsel.