On April 18, 2018, the SEC proposed a package of rulemakings and interpretations designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products.
Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.
In addition to the proposed enhancements to the standard of conduct for broker-dealers in Regulation Best Interest, the Commission proposed an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients. By highlighting principles relevant to the fiduciary duty, investment advisers and their clients would have greater clarity about advisers’ legal obligations.
Next, the Commission proposed to help address investor confusion about the nature of their relationships with investment professionals through a new short-form disclosure document — a customer or client relationship summary. Form CRS would provide retail investors with simple, easy-to-understand information about the nature of their relationship with their investment professional, and would supplement other more detailed disclosures.
Finally, the Commission proposed to restrict certain broker-dealers and their financial professionals from using the terms “adviser” or “advisor” as part of their name or title with retail investors. Investment advisers and broker-dealers would also need to disclose their registration status with the Commission in certain retail investor communications.
Press Release and Fact Sheet: https://www.sec.gov/news/press-release/2018-68
Rule Proposal: https://www.sec.gov/rules/proposed/2018/34-83062.pdf
IA Interpretation Proposal: https://www.sec.gov/rules/proposed/2018/ia-4889.pdf
Form CRS Relationship Summary: https://www.sec.gov/rules/proposed/2018/34-83063.pdf
Chair Clayton Remarks: https://www.sec.gov/news/public-statement/clayton-statement-open-meeting-iabd-041818
Chair Clayton Overview of Package: https://www.sec.gov/news/public-statement/clayton-overview-standards-conduct-investment-professionals-rulemaking