SEC Proposes to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships with Investment Professionals


On April 18, the Securities and Exchange Commission (“SEC“) voted to propose a package of rulemakings and interpretations consisting of more than 900 pages that are “designed to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving access to a variety of types of advice relationships and investment products.”

As stated in the Commission’s Press Release announcing this action: “Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.”

The Commission also proposed an interpretation to reaffirm and, in some cases, clarify its views of the fiduciary duty that investment advisers owe to their clients.

In addition, the Commission proposed to help address “investor confusion” regarding the nature of their relationships with investment professionals through a new short-form disclosure document dubbed “a customer or client relationship summary” (a “CRS“). The Commission stated that it believes that Form CRS would provide retail investors with “simple, easy-to-understand information” about the nature of their relationship with their investment professional, and would supplement other more detailed disclosures.

Finally, the Commission proposed to restrict certain broker-dealers and their financial professionals from using the terms “adviser” or “advisor” as part of their name or title with retail investors.

In proposing these new regulations the Commission added that: “Taken as a whole, the proposed rules and interpretations would enhance investor protection by applying consistent principles to investment advisers and broker-dealers: provide clear disclosures, exercise due care, and address conflicts of interest. The specific obligations of investment advisers and broker-dealers would be, however, tailored to the differences in the types of advice relationships that they offer.

The public comment period will remain open for 90 days following publication of the documents in the Federal Register.

Proposed Rules: Regulation Best Interest. Form CRS Relationship Summary.

Proposed Interpretation: Standard Conduct for Investment Advisers.