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Advocacy in action blog

The insurance and financial services industry uses technology to best serve clients and offer a broad range of products and services at affordable prices. However, a proposed rule by the Securities and Exchange Commission is “outright hostile to the use of technology,” according to a letter sent to SEC Secretary Vanessa Countryman by NAIFA and a group of coalition partners.

The proposed “Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers” regulation would stifle technological innovation and make it more difficult for the industry to improve systems and deliver efficiencies for customers and clients. It creates a new definition of “conflict of interests” that is vague, falls outside of the law, and contradicts currently accepted definitions.

The proposal also conflicts with a number of existing SEC rules, including Regulation Best Interest and the “Standards of Conduct.” It would require the “elimination or neutralization” of technology-related conflicts, rather than their disclosure.

“Therefore, with respect to all conflicts of interests associated with the use of covered technologies that place the firm’s interest above investors’ interests, the Commission would require elimination,” the comment letter states. “This is a standard that is not achievable and would send broker-dealers and investment advisers decades into the past, because they would have to dust off typewriters and fax machines to service their customers and clients.”

Insurance and financial services is a highly regulated industry and rules already in place require broker-dealers and investment advisers to identify and evaluate conflicts of interest. The proposal is not only unworkable but its supposed goals overlap those of existing regulations.

Echoing language in the proposal itself, the letter concludes that complying with the rule would be “difficult or impossible.” It would discourage investor education, hurt customer service, and “increase the market advantage of sophisticated investors over retail investors.”