SEC Adopts Best Interest Standard for Broker-Dealers and Fiduciary Duty Guidance for Investment Advisers
New Standards Seek to Maintain Flexibility But Leave Open Questions About Scope and Enforcement
June 20, 2019
New Standards Seek to Maintain Flexibility But Leave Open Questions About Scope and Enforcement
June 20, 2019
On June 5, 2019, the Securities and Exchange Commission (“SEC”) finalized Regulation Best Interest (“Reg BI” or the “Final Rule”) under the Securities Exchange Act of 1934 (“Exchange Act”) to establish a new “best interest” standard of conduct for broker-dealers when making a recommendation of any transaction or investment strategy involving securities to a retail customer.
The SEC also finalized its interpretation of the fiduciary duty applicable to investment advisers (the “Guidance”) under the Investment Advisers Act of 1940 (“Advisers Act”) and a disclosure form for investment advisers and broker-dealers to provide to retail investors (“Form CRS”).
Finally, the SEC issued an interpretation on the scope of the “solely incidental” prong of the broker-dealer exclusion from the Advisers Act.
In finalizing Reg BI and the Guidance, the SEC has more closely aligned the standards of conduct applicable to broker-dealers and investment advisers while noting that it recognizes the fundamental differences between the services each provide. It also stressed a goal of maintain investors’ ability to choose between the two.
Reg BI and Form CRS have a June 30, 2020 compliance date; the interpretations are effective upon publication in the Federal Register.
This Memorandum provides an overview of Reg BI and the Guidance, discusses our key takeaways, reflects on changes from the Reg BI proposal (the “Proposed Rule”) and Proposed Guidance discussed in our prior Alert Memorandum, and describes implications for enforcement.