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SEC's Regulation BI under fire from ex-officials

The SEC plan for overhauling broker conflict-of-interest rules is coming under fire from an unusual source: a group of its former top economists.

In a sharply-worded comment letter, 11 former SEC officials faulted the proposal released last April under the direction of Chairman Jay Clayton, citing what they called “weak and incomplete” economic analysis.

SEC flag by Bloomberg News
A flag bearing the logo of the U.S. Securities and Exchange Commission flies outside the agency's headquarters in Washington, D.C., U.S., on Monday, April 19, 2010. Photographer: Brendan Hoffman/Bloomberg News

“We find it worrisome that the proposal’s economic analysis does not fully consider some potentially important dimensions of the retail client-adviser relationship,” the officials wrote in the letter dated Feb. 6.

Clayton has made completing the regulation — which would replace the Labor Department's now-vacation fiduciary rule — a top priority and held meetings around the country last year to hear from investors. He’s said he’s open to changes as progressives have argued that the proposal didn’t go far enough and critics from both parties have said the “best interest” obligation it would impose is too vague.

The current proposal “seems to fall short of the best attainable analysis, and we are concerned about the commission’s reputation for doing careful economic policy analysis,” the former SEC officials wrote in their letter. “We encourage the commission to do better.”

A spokeswoman for Clayton didn’t immediately respond to a request for comment.