SEC Proposes New Broker-Dealer Regulations and Interpretations

May 7, 2018

The following proposed rules and interpretations by the Securities and Exchange Commission (“SEC”) aim to improve transparency regarding investors’ relationships with investment advisers and broker-dealers:

  • Regulation Best Interest would require a broker-dealer to act in a retail customer’s best interest when recommending any securities transaction or investment strategy concerning securities to a retail customer. This regulation attempts to clarify that a broker-dealer cannot place its financial interests before a retail customer’s interests when making recommendations.
  • A proposed interpretation would clarify the SEC’s opinion of the fiduciary duty investment advisers owe to clients. By stressing principles important to the fiduciary duty, investment advisers and their clients will have increased clarity on advisers’ legal responsibilities.
  • A proposed short-form disclosure document would address investor confusion regarding their relationships with investment professionals. Form CRS would disclose information on the scope of a retail investor’s relationship with its investment professional as well as complement other detailed disclosures. Advisers can find additional information in Form ADV. As for broker-dealers, disclosures of the material facts about the relationship would be necessary under Regulation Best Interest.
  • A proposed change would limit certain broker-dealers and their financial professionals from including “adviser” or “advisor” in their name or title with retail investors. The proposal would also require investment advisers and broker-dealers to disclose their registration status with the SEC in some retail investor communications.

The public comment period on the proposals will be open for 90 days after publication in the Federal Register.