The Securities and Exchange Commission (SEC) today approved by a 3-1 vote its guidance package for broker-dealers and investment advisers who provide investment advisory services to retail clients. This guidance was first proposed in April 2018, the impetus being a directive contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
In the interim following Dodd-Frank’s enactment, the Department of Labor (DOL) proposed and finalized guidance on investment advice standards that were to apply to retirement investors, but this guidance was later overturned by a federal court.
The Commission’s vote today adopts the full package of its investment fiduciary advice guidance.
Included in Guidance Package
- Regulation Best Interest, which establishes a standard of conduct for broker-dealers when making recommendations to retail customers
- A requirement for investment advisers and broker-dealers to provide a client relationship summary (Form CRS) to retail investors
- An interpretation of the standard of conduct for investment advisers
- An interpretation of the “solely incidental” prong of the Investment Advisers Act of 1940
- The scope of Regulation Best Interest is modified to include account recommendations, including rollovers or transfers from workplace retirement plan accounts to IRAs and recommendations to take a plan distribution.
- Regulation Best Interest would require broker-dealers to disclose whether monitoring will be provided and the scope of that service.
- Regulation Best Interest would specifically require broker-dealers to adopt policies and procedures designed to eliminate sales contests, sales quotas, bonuses, and non-cash compensation that are based on the sale of specific securities or specific types of securities within a limited period of time.
- The consideration of cost is explicitly required as part of a broker-dealer’s care obligation.
- More flexibility in describing a firm’s offerings on Form CRS will be allowed.
- Broker-dealers must establish, maintain, and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole.
- Regulation Best Interest and Form CRS will become effective 60 days after they are published in the Federal Register, and include a transition period until June 30, 2020, to give firms sufficient time to come into compliance.
- The interpretations under the Advisers Act become effective upon publication in the Federal Register.