In an April 18th Press Release from the Securities and Exchange Commission (SEC) they are seeking public comment (over the next 90 days following publication in the Federal Register) regarding two proposed rules and an interpretation to address retail investor confusion about the relationships that they have with investment professionals.
Under proposed Regulation Best Interest, a Broker-Dealer (BD) would be required to act in the best interest of a retail customer when making recommendations (securities transaction or investment strategies involving securities). Currently this is only required of Investment Advisors (IA’s) and would mark a significant difference from the suitability standard currently used by BD’s and their representatives.
Additionally, the SEC proposed an interpretation intended to reaffirm its views of the fiduciary duty that IA’s owe their clients and clarify the legal obligations of advisers.
To help facilitate this shift, the Commission proposed a new short-form disclosure document called a customer (or client) relationship summary (CRS) which would provide retail investors with simple easy to understand info about the nature of their relationship. Currently this type of info (for advisers) can be found in Form ADV. Under Regulation Best Interest, BD’s would need a similar document to disclose material facts about the “scope and terms of the relationship.”
And finally, the Commission has proposed restricting certain BD’s and their financial professionals from using the title of “adviser” or “advisor” with retail investors and for IA’s and BD’s to disclose their registration status with the Commission in certain retail investor communications.
The end result should help apply consistent principles to IA’s and BD’s resulting in, “clear disclosures, exercising due care, and addressing conflicts of interest.”
