(Bloomberg Gadfly) -- The SEC just threw brokers a lifeline. They should grab it.

Brokers’ troubles began in April 2015, when the Department of Labor first proposed its fiduciary rule. The regulation, which was issued a year later, requires brokers to act as, well, fiduciaries ― or to put their clients’ interests ahead of their own ― when handling retirement accounts.

It was a big departure from business as usual. Fund companies and other purveyors of financial products typically pay brokers to sell their wares, which means brokers are incentivized to recommend those that pay them the most, not necessarily those that are in their clients’ best interests. The naked conflict doesn’t exactly promote trust, so brokers aren’t quick to disclose it to clients.

All of that would obviously have to change under the fiduciary rule, and brokers fought back. They insisted they’re merely salespeople, dutifully executing orders for clients. And because they don’t give financial advice, there’s nothing wrong with selling the products that hand them the biggest bounty.

Last month, a federal appeals court in New Orleans seemed to agree. The 5th U.S. Circuit Court of Appeals struck down the fiduciary rule in a 2-1 decision, finding the Labor Department exceeded its authority when it issued the rule. Writing for the majority, Judge Edith Jones pointed out investment advisers "are paid fees because they render advice," whereas brokers "are compensated only for completed sales."

A Labor Department spokesman told Bloomberg Law a day after the decision that it will no longer enforce the fiduciary rule. Brokers were no doubt overjoyed, but it was a classic case of winning the battle and losing the war.

Brokers now faced an existential problem, not just a regulatory one. Traditional brokerage firms charge a fortune for those "completed sales," either in the form of high commissions or hidden sales charges that fund companies pay brokers and pass on to investors. Investors can buy comparable, if not identical, financial products from online brokers at a fraction of the cost, in some cases without paying any commissions at all. If brokers merely execute trades, then it’s not clear why investors should keep paying their premium prices.

(Bloomberg News)
(Bloomberg News)

This is where the SEC comes in. Chairman Jay Clayton ― my former colleague at Sullivan & Cromwell ― has long called for new standards of conduct for brokers. Last week, the commission proposed rules requiring brokers to disclose money they receive for selling financial products, whether from purveyors of those products or their own firm, and to make sure that whatever they sell is in their clients’ best interests.

While the Labor Department could still appeal the 5th Circuit’s decision, it’s widely assumed the SEC’s proposed rules will ultimately replace the Labor Department’s fiduciary rule, which makes some sense. For one, the SEC is better suited to regulate financial firms than the Labor Department. And the department can only regulate retirement accounts, whereas SEC rules would apply to all investment accounts.

It’s hard to imagine a better outcome for brokers. By requiring them to look out for clients’ best interests, the SEC is effectively requiring them to give financial advice. That conveniently distinguishes them from online brokers and should let them keep charging premium fees for their services. At the same time, the SEC stops short of imposing a fiduciary standard on brokers, which means they can keep their kickbacks if they disclose them to clients.

I supported the Labor Department’s fiduciary rule, and still do. To me, anyone who gives financial advice should have to put their clients’ interests ahead of their own, full stop. Over time, I suspect more investors will demand the same from financial professionals.

In the meantime, every broker in America should thank Clayton and the SEC. And then get busy looking after investors’ best interests.

Nir Kaissar

Nir Kaissar

Kaissar is a Bloomberg Gadfly columnist covering the markets. He is the founder of Unison Advisors, an asset management firm.