SEC Proposes Regulations to Govern Investment Advising Relationships

Following a near-unanimous 4-1 vote, the Securities and Exchange Commission (SEC) is issuing proposed regulations intended to govern relationships between investment professionals and the investors they serve. These regulations are seen by many as an alternative to the Department of Labor (DOL) investment fiduciary regulations and prohibited transaction exemption guidance package. (Full enforcement of the DOL guidance is currently suspended, with less stringent advisor standards through July 1, 2019, with the prospect that they may be significantly modified or withdrawn.)

The SEC has for some time been expected to act on its own to propose standards for investment advising relationships, having been given a directive to do so under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The SEC, in fact, held a public hearing yesterday, Wednesday (April 18, 2018), on standards for relationships between investors and broker-dealers or investment advisors. Some opponents of the DOL’s investment advice guidance had long argued that it is more properly the province of the SEC to regulate investment advising relationships, including advice given to retirement savers.

The SEC release includes three documents.

Under the proposed SEC regulations, broker dealers would be required to put investors’ interests before their own. In addition, the proposal would clarify the SEC’s views on the application of the fiduciary duties and standards that investment advisers owe their clients. The regulations also aim to clarify investor confusion about their relationship with investment professionals, and propose to restrict some broker-dealers and their associated financial professionals from using the term “adviser” or “advisor” as part of their name. Finally, the proposal would require firms to disclose their registration status with the SEC.

Public comments will be accepted for a 90-day period following publication of the proposal in the Federal Register. The SEC will then determine its next steps.