The SEC must oversee two beneficiarieswith conflicting goals. Now maybe it would be wise (perhaps not“Solomon wise”), for the SEC to, instead of splitting the baby,take baby steps. (Photo: Shutterstock)

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You remember what happened when the two women came to KingSolomon arguing over who was the true mother of a certain unnamedbaby. Solomon, no doubt perturbed by this unwanted intrusion,picked up the remote and muted the football game.

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Then, with all the wisdom of, well, Solomon, the king stood,took a sip of his Dilly Dilly Juice and decreed, as anycommon-sense thinking man would, “Since you both equally claim tobe the mother of this infant, then I so declare you shall eachshare equal custody. Now someone fetch me my sword so I can splitthis baby as to allow each woman to retain her rightful share.”

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Call it the SEC's Solomon Dilemma, but this whole “Regulation Best Interest” has all the earmarksof a split baby (see “The SEC's “Best Interest” Proposal – A Step Forwardor a Set Back?” FiduciaryNews.com, September 6, 2018).

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Here's what I mean: In terms of its position versus theDOL, the SEC had the advantage of moving second. It got to see theweaknesses of the DOL's fiduciary rule. This enabled it to offeran alternative that addressed these weaknesses.

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That's when the SEC split the baby.

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It's not like the entire proposal is bad. The idea ofdisallowing use of titles that look and sound like “RegisteredInvestment Adviser” when you're not a Registered Investment Advisershould have been promulgated years ago.

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It's just that the bulk of Regulation Best Interest splits the baby. Ittakes some of the ideas of the proponents of the DOL's fiduciaryrule and some of the ideas of the opponents of the DOL's fiduciaryrule and mashes them together. The result is an idea that satisfiesneither party. Indeed, some would argue that it makes the situationworse.

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It comes down to “splits.” The SEC is like a split interesttrust. It must oversee two beneficiaries with conflictinggoals.

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This isn't the SEC's fault. It's the fault of the originallegislation that created the SEC. The SEC is simultaneouslyrequired to increase capital markets remain liquid (i.e., make lifeeasier for brokers) while at the same time protect the interests ofinvestors (i.e., make like difficult for brokers).

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Believe me, the SEC is honestly trying as hard as it could tomake the best of a bad situation.

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That being said, the SEC is partially responsible for the badsituation. It fumbled the concept of “dual registration” to thepoint where we have the sell-side tail wagging the buy-side dog.This just ain't natural. And the hole they dug themselves won't beeasy to dig out of.

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Still, since we're on the subject of splitting the baby, maybeit would be wise (perhaps not “Solomon wise”), for the SEC to,instead of splitting the baby, take baby steps.

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The public is confused. It doesn't know if it's gettinginvestment advice or being sold brokerage (or insurance) products.There's just too much overlap in the language. Addressing thisfirst is the baby step the SEC can and should take.

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Forget “best interest” or even “fiduciary” at this point. TheSEC should just focus on splitting the business models, not thebaby.

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Christopher Carosa

Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).