The broker-dealer business model is broken and won’t be fixed by the SEC’s proposed Regulation Best Interest. That was the picture painted by all but one of five witnesses called to testify on the effectiveness of the proposed rule at a Congressional hearing Thursday.
“The brokerage business model, with all of these and other perverse incentives, is set up to pit broker against client. These incentives reward bad advice that harms investors. What’s truly shocking is that brokers are allowed to engage in harmful conflicts of interest all while leading investors and policymakers to believe they are trusted financial advisors who will do what’s best for investors,” Dina Isola, investment advisor representative at Ritholtz Wealth Management said at the hearing.
The broker-dealer industry is “caught up in a web of toxic incentives,” Isola added at the hearing before the U.S. House of Representatives Financial Services Committee’s Subcommittee on Investor Protection, Entrepreneurship and Capital Markets. The hearing was called to examine whether the proposed Reg BI does indeed put investors first, as claimed by the regulator.
