“This action is long overdue,” SEC Chairman Jay Clayton said. However a commissioner who voted against the rule says it will cost consumers. (Yuri Gripas/Bloomberg News)

Wall Street scored another major victory Wednesday over Obama-era regulations.

The Securities and Exchange Commission approved a rule requiring brokers to not put their own interests before those of their clients. But the rule falls short of what many consumer advocates say is necessary to address conflicts of interest that permeate Wall Street and is far weaker than a rule adopted during the Obama administration.

The SEC approved the rule by a 3-to-1 vote with the commission’s sole Democrat, Robert Jackson, voting against it. Jackson is a law school professor who has been on the panel since January 2018.

“This action is long overdue,” said SEC Chairman Jay Clayton, noting that 43 million Americans have a retirement or brokerage account. The rule “benefits retail investors and our markets for years to come.”

The rules are the culmination of a nearly decade-old battle between the financial community and consumer advocates. It could affect the millions of people every year who seek out financial advice when purchasing stocks or mutual funds or saving for retirement or college.

Brokers are required to recommend investments “suitable” for their clients and appropriate for their financial goals and risk tolerance. Proponents say that the SEC rule would improve that standard by requiring brokers to offer their clients not only “suitable” investments but also those that are in their client’s best interest. Brokerage firms would also be required to disclose potential conflicts of interest and how much they could earn from specific recommendations.

Consumer advocates called the SEC’s approach weak and said it leaves consumers vulnerable. The rule, for example, does not define what would be considered to be in a client’s best interest, allowing brokers and other investment advisers significant leeway to define it themselves, they say.

It also falls short of similar regulations adopted by the Labor Department, which oversees retirement accounts, during the Obama administration and that the financial industry successfully challenged in court. The Obama administration estimated that broker conflicts of interest and weak consumer protections cost IRA investors up to $17 billion a year in excessive fees.

“Rather than requiring Wall Street to put investors first, today’s rules retain a muddled standard that exposes millions of Americans to the costs of conflicted advice,” Jackson said. The SEC failed “to arm Americans with the tools they need to survive the nation’s retirement crisis.”

Rick Fleming, the SEC’s investor advocate, said he was also disappointed by the rule. “While not as strong as it could be, is a step in the right direction,” Fleming said in a statement released after the committee hearing. But it fell short in several places, he said.

The SEC, for example, passed up an opportunity to clearly define the differences between a broker and an investment adviser, Fleming said. An investment adviser is generally held to higher standards in protecting consumers’ interests.

“I anticipate that the same confusion will exist a decade from now,” Fleming said in his statement. “The Commission had an opportunity to help investors by brightening the lines between investment advisers and broker-dealers, but instead the Commission has formalized its long-standing acquiescence to the preferences of the brokerage industry.”

Democratic lawmakers also criticized the rule.

”The SEC’s new rules make it easier for Wall Street to cheat families out of their hard-earned life savings," Sen. Elizabeth Warren (D-Mass.), a critic of the banking industry and presidential candidate, said in a statement.

Rep. Maxine Waters (D-Calif.), chair of the House Financial Services Committee, said: “Instead of providing protections to ensure workers and families are not ripped off when investing their hard-earned savings, this rule will only create confusion. I urge the SEC to rescind this rule and put the interests of savers and retirees first.”

The financial industry has said it agreed broker rules needed to be modernized but objected to the Obama administration’s approach, which some in the industry said left them vulnerable to being sued and limited the choices of investments offered to consumers.

The SEC proposal “goes above and beyond” to eliminate potential conflicts of interest, including banning sales contests that encourage brokers to sell a certain financial product, said Samantha DeZur, executive director for capital markets competitiveness for the U.S. Chamber of Commerce. “These rules will protect investors while also preserving their choices to different types of advice.”