Vedder Price

Vedder Thinking | Articles SEC Adopts Rules and Interpretations Concerning the Standard of Conduct for Broker-Dealers and Investment Advisers

Newsletter/Bulletin

Reader View

 

On June 5, 2019, the SEC adopted a package of rules and interpretations addressing standards of conduct for broker-dealers and investment advisers:

  • Regulation Best Interest. Regulation BI establishes a standard of conduct for broker-dealers when making an investment recommendation to a “retail customer” involving securities. Regulation BI includes specific obligations concerning disclosure, standard of care, conflicts of interest and compliance, requiring a broker-dealer to:
    • (1) act in the best interest of its retail customer at the time a recommendation is made, without placing the broker-dealer’s own interests ahead of its client’s interests; and
    • (2) address conflicts of interest by establishing policies and procedures to identify and disclose, and in certain circumstances mitigate or eliminate, conflicts of interest..
  • Form CRS Relationship Summary. Investment advisers and broker-dealers will be required to deliver a “relationship summary” to retail investors at the beginning of a client relationship. The form would describe the services offered to retail investors, the standard of conduct applicable to those services, fees and costs, conflicts of interest, the firm’s disciplinary history and how to obtain additional information.
  • SEC Interpretation Regarding Standard of Conduct for Investment Advisers. The SEC issued an interpretive release regarding an investment adviser’s fiduciary duty under the Investment Advisers Act of 1940. Among other things, the interpretation discusses an adviser’s obligation to act in the best interest of its client at all times and how an adviser fulfills this duty. The interpretive release was not intended to create any new legal obligations for advisers.
  • “Solely Incidental” Interpretation. Finally, the SEC issued an interpretation of the “solely incidental” prong of the broker-dealer exclusion from the definition of “investment adviser” under the Advisers Act.

Regulation BI and Form CRS will be come effective 60 days after publication in the Federal Register and will include a transition period until June 30, 2020, when firms must come into compliance. The SEC’s interpretive positions are effective upon publication in the Federal Register.

Vedder Price is preparing a detailed summary of these new rules and interpretations that will be published under separate cover.

The SEC’s adopting and interpretive releases are available as follows:

If you have any questions about this topic, please contact the Investment Services group here.

 



Professionals



John S. Marten

Shareholder



Jacob C. Tiedt

Shareholder



Nathaniel Segal

Counsel