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The Washington Report

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June 12, 2019

Other HR/Employment

SEC Issues Final Regulations and Interpretations on Investment Advice
On June 5, 2019, the Securities and Exchange Commission (SEC) voted to adopt a package of regulations and interpretations that are, according to the SEC, intended to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, while preserving access to services and products and balancing other factors. The package of investment advice guidance consists of two final regulations and two interpretations, briefly described below.

Regulation Best Interest. Under “Regulation Best Interest,” broker-dealers will 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. This expands the broker-dealer standard of conduct beyond existing suitability obligations. Notably, Regulation Best Interest will apply to recommendations to roll over or transfer assets in a workplace retirement plan account to an IRA and recommendations to take a plan distribution. Registered broker-dealers will be required to comply by June 30, 2020.

Form CRS Relationship Summary. The second final regulation will require registered investment advisers and registered broker-dealers to provide a relationship summary to retail investors. The summary will include information about fees and costs, conflicts of interest, and disciplinary history. There are also filing requirements. Compliance will be required by June 30, 2020.

Interpretation: Standard of Conduct for Investment Advisers. The SEC issued an interpretation to reaffirm and clarify the fiduciary duty that investment advisers owe to clients under the Investment Advisers Act of 1940 (the Act).

Interpretation: Broker-Dealer Exclusion. The SEC issued an interpretation of the “solely incidental” prong of the broker-dealer exclusion under the Act. It is intended to more clearly delineate when a broker-dealer’s actions cause it to become an investment adviser within the meaning of the Act.

The regulation on the broker-dealer standard of conduct (Regulation Best Interest), the regulation on the Form CRS relationship summary, a press release, a fact sheet, and the two interpretations are available here.

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