At today’s open meeting, the Securities and Exchange Commission adopted a final Regulation Best Interest, as well as additional guidance.
Final action relating to the broker-dealer standard of conduct had been anxiously anticipated. The Commission noted that Regulation Best Interest enhances the standard of conduct beyond the current broker-dealer suitability standard. In addition, the Commission adopted a requirement for a Form CRS Relationship Summary. The Form CRS will require registered investment advisers and broker-dealers to provide retail investors with a plain English explanation about the relationship with the financial professional.
In its Fact Sheet, the Commission also noted that it “also issued an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients under the Advisers Act. The interpretation reflects how the Commission and its staff have applied and enforced the law in this area, and inspected for compliance, for decades. By highlighting principles relevant to the fiduciary duty, investment advisers and their clients will have greater clarity about advisers’ legal obligations. Finally, the Commission issued an interpretation of the ‘solely incidental’ prong of the broker-dealer exclusion under the Advisers Act, which is intended to more clearly delineate when a broker-dealer’s performance of advisory activities causes it to become an investment adviser within the meaning of the Advisers Act. This interpretation confirms and clarifies the Commission’s position, and illustrates the application in practice in connection with exercising investment discretion over customer accounts and account monitoring.”
The adopting release can be found here for Regulation Best Interest and here for Form CRS. Additional guidance are expected to be released shortly.
The rules and forms will be effective 60 days from publication in the Federal Register and the interpretations will be effective upon publication in the Federal Register. By June 30, 2020, registered broker-dealers must begin complying with Regulation Best Interest and broker-dealers and investment advisers registered with the Commission will be required to prepare, deliver to retail investors, and file a relationship summary.