Workers depend on investments in the financial markets to finance our retirements and grow our other long-term savings. That means we need sound investment advice, provided by experts who are looking out for our best interests. While it seems obvious that the people whom we rely on to provide this advice should be required to act in our best interest and not line their own pockets, that is not always the case under current rules. Research shows that, as a result, many working people lose more than one-fourth of their potential retirement paychecks to corrupt financial advice.

Investor advocates have been fighting for decades to close this egregious loophole. On Wednesday, the U.S. Securities and Exchange Commission proposed a rule called Regulation Best Interest. And while any movement in this area could be viewed as a positive sign, the proposal as is appears to be inadequate.

The devil is in the details, which will take some time to fully understand. The standard of conduct required of brokers appears to fall short of a clear and unambiguous requirement that brokers recommend the best available investment options.

Democratic SEC Commissioner Kara Stein said:

Does this proposal require financial professionals to put their customers’ interests first, and fully and fairly disclose any conflicting interests? No. Does this proposal require all financial professionals who make investment recommendations related to retail customers to do so as fiduciaries? No. Does this proposal require financial professionals to provide retail customers with the best available options? No. 

Could we have proposed a best-interest standard? Yes, we could have proposed such a standard. Unfortunately, we did not.

Commissioner Robert J. Jackson Jr., also a Democratic SEC commissioner, said:

The standard set forth in Regulation Best Interest is far too ambiguous about a question on which there should be no confusion: the duty that investors are owed by those who are entrusted with ordinary families’ economic futures. Americans deserve a clear best-interest rule that places the client’s needs ahead of the broker’s. Period.

The commissioners’ statements say it all. The SEC should have proposed a rule that would stop people who provide investment advice from skimming our savings. The proposal does not do that.