Therevisions come after the Securities Industry and Financial MarketsAssociation urged the SEC to make clear that brokers shouldn't haveto notify clients of conflicts each time they make a trade on theirbehalf.

(Bloomberg) –Wall Street is finally getting tougher rules that crack down on industry conflicts of interest. Bankers are hardlysweating it.

The U.S. Securities and Exchange Commission is poised toapprove new requirements next week for selling stocks, bonds andother assets after brokers fended off the government's attempts torestrict shady practices for almost a decade.

But investor advocates are concerned the regulations fall shortof what's needed to prevent firms from taking advantage of clients,a worry underscored by the industry's support of the SEC'seffort.

Among the positives for brokers: The rules are softer thanObama-era limits that they successfully sued to block, and WallStreet would rather have an SEC chief appointed by Donald Trump toset policies than take its chances with what might happen should aDemocrat win the White House in 2020.

Knut Rostad, the president of the Institute for the FiduciaryStandard, said the new SEC rules will give investors a falseimpression that brokers are being held to higher standards.

“This is all a big runaround,” said Rostad, whose groupadvocates for strict codes of conduct for financial professionals.“Brokers for the first time will be able to look clients in theface and say we are required by law to put your interestsfirst.”

Lawsuits coming?

Already, some pro-investor groups are contemplating a legalchallenge — meaning the debate could go on long after SECcommissioners vote on the rules June 5.

A spokeswoman for SEC Chairman Jay Clayton declined to commenton the specifics of the rule ahead of next week's meeting. Clayton,a former bank lawyer appointed by Trump, has stressed that the newregulations are far from a giveaway to Wall Street andsignificantly raise the bar for brokers.

Clayton thrust himself into the contentious fight over industrystandards shortly after joining the agency in 2017. Last year, theSEC issued a lengthy proposal designed to curb practices likecontests that reward brokers for selling as many securities aspossible. The plan also required better disclosures of internalmarketing agreements that can drive up fees.

Broadly, the proposal called for brokers to act in the “bestinterest” of their clients. Clayton has said that's a step up fromnow, where brokers are only required to recommend investments thatthey believe are suitable.

Still, it's not as strict as what's known as a fiduciarystandard, which demands that a customers' interests be putfirst.

That's not how some opponents see it. Barbara Roper, director ofinvestor protection at the Consumer Federation of America, saysthat the SEC is “mislabeling” the regulation to suggest it'sstronger than it actually is.

“The SEC is misleading investors into expecting brokers torecommend the investments that are best for them, but its ruledoesn't require that,” she said. “That's going to do real financialharm to vulnerable investors.”

The SEC's final rule will be similar to the proposal, but itwill include some changes that benefit financial firms, accordingto people familiar with the matter.

For instance, brokers will probably get more leeway in informingclients of certain conflicts, said two of the people who asked notto be named in discussing internal SEC deliberations.

A key tweak is that disclosures won't necessarily have to be inwriting, the two people added.

Industry lobbying

The revisions come after the Securities Industry and Financial MarketsAssociation, Wall Street's biggest trade group, urged the SECin an August letter to make clear that brokers shouldn't have tonotify clients of conflicts each time they make a trade on theirbehalf.

An issue being watched closely by investor advocates is whetherthe SEC asserts that its best-interest standard preempts anysimilar regulations adopted by states, which started proposingstepped-up requirements on brokers after the Obama administration's rules were overturned in 2018.

SIFMA has called for a uniform federal standard,arguing that proposals like one recently issued by Nevada “wouldresult in an uneven patchwork.”

The SEC vote will also touch on investment advisers –money managers who compete with brokers and operate under the morestringent fiduciary standard. Many consumers aren't aware of thedifference, and investor advocates have long contended that the twoshould be subject to the same code of conduct.

Adviser breaks?

In a fresh twist to the years-long fight, some are now concernedthat the SEC might actually weaken the fiduciary obligation forinvestment advisers as part of the new rules for brokers.

Those worries stem from additional guidance that the SEC isexpected to also approve next week, which clarifies theresponsibilities money managers have to their clients andre-defines the standard.

“The objective of the commission's work in this area is toreaffirm, and in some cases clarify, the existing federal fiduciaryduty owed by investment advisers to their clients, reflecting howthe commission and SEC staff have inspected for compliance andinterpreted and enforced the law in this area for decades,”Clayton's office said in an emailed statement.

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