SEC Investment Advice Standards Of Conduct Staff Bulletin Overview:
- Who: The U.S. Securities and Exchange Commission (SEC) released a staff bulletin directed at broker-dealers and investment advisors.
- Why: The SEC’s bulletin issued new guidance to broker-dealers and investment advisors, which advised them to put the interests of retail investors first when making account recommendations.
- Where: The staff bulletin is relevant to financial advisors nationwide.
The U.S. Securities and Exchange Commission (SEC) issued a staff bulletin to broker-dealers and investment advisors, advising them to put the interests of retail customers first when making account recommendations.
The SEC noted in its guidance, which was posted as a staff bulletin, that, while standards of conduct differed in some ways amongst industry players, as a whole, they are all drawn from “key fiduciary principles that include an obligation to act in the retail investor’s best interest.”
Alterations to either the Regulation Best Interest rule or the Investment Advisers Act were not suggested in the new SEC guidance.
Regulation Best Interest, also known as Reg BI, was approved by a Republican majority on the commission in 2019 and has been criticized by Democrats as not explicitly defining what exactly an investors’ “best interest” is, Law360 reports.
The idea behind Reg BI is for it to set an industry standard for broker-dealers to get in hop step with investment advisors, while at the same time not holding the former to a set fiduciary standard.
SEC Says Retail Investors Will Often Rely On Finance Advisors
The bulletin touched specifically on the importance of account selection for retail investors, who, according to SEC Chairman Gary Gensler, often rely on advisers to help them make decisions.
“Many (retail investors) rely on broker-dealers and investment advisers to help them choose the investments, strategies and accounts to meet their goals,” Gensler said in a statement. “It is important that investors can trust that the advice or recommendations they receive are designed to serve their best interests.”
Gensler previously promised to “get the most” out of Reg BI when he made his first appearance in front of Congress last year as chairman of the SEC, Law360 reports.
The SEC said the bulletin will help broker-dealers and investment advisors “satisfy their obligations” to retail investors in their care.
“Selection of an account type is a consequential decision for retail investors and is associated with potentially significant conflicts of interest and raises particular issues for financial professionals operating within dually registered or affiliated firms, as well as dually licensed financial professionals,” the agency said.
The new guidance was also designed to help firms and financial professionals begin to consider “reasonably available alternatives,” along with a better understanding of how to address conflicts of interest, and the adoption of more reasonable policies and procedures, according to the SEC.
The SEC also proposed a new rule this month which would require public companies to make disclosures on the impact and effects their business is having on climate change.
Have you used a broker-dealer or investment advisor when making retail investment decisions? Let us know in the comments!
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