WASHINGTON (Reuters) - Seven U.S. states and the District of Columbia on Monday sued to block rules adopted by the Securities and Exchange Commission (SEC) that would allow brokers to recommend products that benefit them as long as they disclose the conflict.
The package of rules, approved in a vote by the SEC, require brokerage firms to disclose potential conflicts of interests in the fees investors pay and the commissions brokers earn when giving financial advice.
The rules, which will be implemented by June 30, 2020, also require brokers to have a higher standard to meet a client’s best interest when recommending stocks, mutual funds and other financial products.
In a filing in the U.S. District Court in the Southern District of New York, the states of New York, California, Connecticut, Delaware, Maine, New Mexico, Oregon and the District of Columbia argued that the rule change is “arbitrary and capricious.”
“Among the harms they will suffer, Plaintiffs will lose revenue from the taxable portions of distributions from their residents’ investment and retirement accounts that are worth less because of expensive conflicts of interest in investment advice,” the states wrote in the court filing.
The SEC did not immediately respond to a request for comment.
The SEC’s vote comes at the end of a 10-year battle over regulations on the investment advice industry. Last year, lobby groups successfully sued to overturn the similar fiduciary standard proposed by the Labor Department.
Republican-appointed SEC Chairman Jay Clayton called the rule changes “long overdue,” but investor advocates have said the rules remain too vague in their definition of “best interest” and do not address all investment advice conflicts.
Reporting by Makini Brice; Editing by Jacqueline Wong