New securities and exchange commission rules governing your relationship with your financial professional

By Seth D. Harris - April 29, 2020

In June, 2019, the Securities and Exchange Commission approved the Best Interest Regulation, modifying the rules that govern how registered investment advisors and broker dealers give advice to consumers. Seth Harris breaks down what it all means and offers takeaways to discuss with your financial professional. 


In June 2019, the Securities and Exchange Commission (SEC) approved its Regulation: Best Interest to modify the rules governing how registered investment advisor and broker-dealers (collectively “financial professionals”) make investment recommendations to consumers. Regulation: Best Interest is the next chapter—but probably not the last—in a long struggle over government’s refinement of the standards of care financial professionals owe to their clients.

This debate, and these regulations, matter immensely to retirement savers. As I’ve discussed in previous posts on the Studio, retirement planning is a complicated endeavor. It’s fraught with risk-laden questions about lifestyle, longevity, and lifetime income; “known unknowns” and “unknown unknowns”; fundamental health care decisions; and challenging tax issues. Trustworthy guidance can be immensely valuable when constructing a retirement plan. Just like your doctor guides your medical decisions, most of us need a “financial physician” to guide our retirement decisions.

Regulation: Best Interest, coming soon?

Regulation: Best Interest and the associated rules and guidance will govern financial professionals’ behavior and also adjust retirement savers’ expectations. The rules are scheduled to take effect in mid-to-late August, but the SEC will allow a transition period through June 30, 2020 to give firms extra time to comply. Even then, the rules may not be settled; consumer advocates could sue to block the regulations from taking effect. Also, the SEC only regulates “securities.” Not all retirement advice relates to securities, and the SEC said plainly it could not preempt state regulations, even those affecting securities. Some states’ legislatures, state insurance and securities regulators, and the U.S. Department of Labor are working on their own retirement investment advice rules. So, Regulation: Best Interest marks the end of the beginning of this process, not the end of the end.

Nonetheless, Regulation: Best Interest will govern until someone in authority says otherwise. This post introduces you to the regulation and suggests how it might affect you and your retirement planning.  

Form CRS

Every investor should know what she or he is buying before entering into a relationship with a financial professional and understand any pitfalls or risks that might arise. If you don’t like what one advisor offers, consider looking for another advisor you like and trust more. That’s the logic underlying the SEC’s new rule (an adjunct to Regulation: Best Interest) requiring firms to provide prospective clients with a “relationship summary”—“Form CRS” in the SEC’s language. So that investors can make an informed choice of financial professional, both investment advisers and broker-dealers will be required to provide them with Form CRS before any relationship is formalized in a contract, a recommendation is made, an order is placed, or an account is opened.

The SEC will not mandate a single form. Instead, it will dictate a set of questions that the firms will answer in their own words in four pages or less. Each firm’s form will explain the relationships and services it is offering to investors, the standard of conduct applicable to those services (see below), the fees and costs the investor will pay, the firm’s conflicts of interest in providing advice to the investor, and the SEC’s website address where investors can find additional information. The forms also should describe how your financial professional will be compensated—that is, how you or someone else will pay for your investment advice.

This is information every investor should want. The challenge is, will ordinary people understand Form CRS? This question was controversial during the SEC’s regulation-writing process. Most of us are not fluent in the language of investing and financial planning. In fact, that’s one reason we need trustworthy expert advice. But before we hire a financial professional, we need to protect ourselves.

We can’t simply click “agree” on a website or sign a form without reading it closely. And we will have to ask questions of our prospective financial professionals, including questions as simple as “what does that word mean,” “can you explain your conflicts of interest to me,” and “how much is all this going to cost me.” Press for clear and satisfactory answers. If you don’t get the answers you want, walk across the street and start the process over with a different financial professional. Even after the Form CRS rule takes effect, caveat investor will remain a good rule of thumb.

Broker-dealers’ “best interest” standard of care and investment advisers’ fiduciary duty

The SEC’s regulation bluntly acknowledges that broker-dealers and investment advisers have inherent conflicts of interests with their clients. Most important, a broker-dealer has an incentive “to seek to increase its own compensation or other financial interests at the expense of the customer to whom it is making investment recommendations.” In other words, broker-dealers might make investment recommendations that allow them to reap larger commissions or fees for themselves rather than better returns for their customers. 

Regulation: Best Interest’s principal solution to these conflicts of interest is to require broker-dealers to make only investment recommendations that serve their clients’ “best interest.” This “best interest” standard of care is not defined in the regulation, and its application will depend upon a situation’s facts and circumstances. Yet, the SEC says this standard of care always requires broker-dealers to make investment recommendations that put the client’s interests ahead of the broker-dealer’s own interests. Disclosure is one part of compliance, but it is not sufficient alone. Broker-dealers must satisfy four requirements: disclosure about any investment recommendation and their relationship with the investor; “reasonable diligence, care, and skill” in making the recommendation (i.e., a “duty of care”); policies and procedures reasonably designed to address and, in some cases, mitigate conflicts of interest; and policies and procedures reasonably designed to comply with Regulation: Best Interest. According to a new interpretation the SEC issued alongside Regulation: Best Interest, investment advisers are subject to a fiduciary duty—presumably more exacting than this best interest standard—that includes not only a duty of care, but also a duty of loyalty.  

"Trustworthy guidance can be immensely valuable when constructing a retirement plan. Just like your doctor guides your medical decisions, most of us need a 'financial physician' to guide our retirement decisions."

You may be surprised to learn that your broker-dealer representative or investment adviser is permitted to consider his or her own financial interests when recommending how you should invest your retirement savings. After all, it’s your money. Excessive fees and commissions are “leakage” from your retirement savings that can reduce those savings and your retirement income. At the same time, investment advice and financial planning are valuable services and the people who provide them are entitled to be paid fairly for their work. How should we reconcile this tension?

Simply, make these issues central to your discussions with your broker-dealer representative or investment adviser. Here are a few questions you might ask (and one firm statement):

  • How will your broker-dealer or investment adviser be paid? Will she or he receive a fee (usually a flat annual percentage of the assets the advisor manages for you) or a commission (usually a one-time percentage of the assets invested in a product the advisor sells you)? And who pays: you, the company providing the investment, or someone else?
  • Are there lower cost alternatives? In other words, is there a way you can invest to pursue your goals while paying less for investment advice?
  • Make clear you want your retirement savings invested in a cost effective way while addressing your retirement goals and needs. Fees or commissions for investment advice are not the whole story. Providers of retirement and other investment products also charge fees and costs. Insist on a full explanation of all fees and other costs associated with every investment your financial professional recommends.
  • Are there alternative products with lower fees and costs? Would these lower cost alternatives result in lower returns or higher risks? Some products, like annuities*, offer important benefits like protected lifetime income that cost more, but also may be worth more. Understand the added costs and discuss what you will get in return.
  • What effect will all these fees, commissions and costs have on your retirement income? Your retirement plan should be focused on how much income you can spend in retirement and whether your retirement savings will last for the rest of your life. Fees, commissions, and costs can reduce your savings and your retirement income. Ask your financial professional how much, and what it will mean for your plan and your life.



Regulation: Best Interest isn’t a panacea. As a former regulator, I can say that no regulation is. Regardless of the disclosures and standards of care imposed by government, you are going to have to figure out how to produce the best, most cost-effective retirement investment and income plan. Your “financial physician” should help by providing the information you need to make good decisions, understanding your goals and needs, and expertly guiding you to options that can help you achieve those goals and fulfill your needs. Your task is to find someone who will excel in that role, to learn what you need to know, and to ask every question that must be answered.




*What is an annuity?

Annuities are long-term, tax-deferred vehicles designed for retirement. Variable annuities involve risks and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59 ½. Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity. Guarantees are backed by the claims paying ability of the issuing insurance company.

Annuities are not for everyone. And, it’s important to remember that these products are meant to be long-term vehicles designed for retirement, so there are restrictions in place to discourage you from withdrawing all of your money at once or taking withdrawals before age 59 ½. However, most annuities do allow for exceptions based on specific circumstances such as a terminal illness or other emergencies.

Investing involves risk, including possible loss of principal. 

The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.

About the author

Seth D. Harris, Former Acting U.S. Secretary of Labor, Attorney at Seth D. Harris | Law & Policy

Seth D. Harris is a nationally recognized expert in labor, employment and retirement law and policy. He is an attorney in Washington D.C. and a Visiting Professor at Cornell University's Institute for Public Affairs. He also served as Acting U.S. Secretary of Labor for the Clinton Administration, and Deputy U.S. Secretary of Labor from 2009-2014.


Annuities are issued by Jackson National Life Insurance Company (Home Office: Lansing, Michigan) and in New York, annuities are issued by Jackson National Life Insurance Company of New York (Home Office: Purchase, New York). Variable products are distributed by Jackson National Life Distributors LLC, member FINRA. May not be available in all states and state variations may apply. These products have limitations and restrictions. Contact the Company for more information.

Jackson® is the marketing name for Jackson National Life Insurance Company® and Jackson National Life Insurance Company of New York®. Jackson National Life Distributors LLC.

Tom Hurley and Phil Wright are affiliated with Jackson. All other authors are not affiliated with Jackson.