SEC Adopts New Broker-Dealer Rules on Standard of Behavior

On June 5, 2019, the Securities and Exchange Commission (the “SEC”) adopted new rules, including: (i) Regulation Best Interest, raising the requirement for broker-dealers recommending securities to retail clients from determining that the securities are suitable to acting in the best interests of clients, and requiring certain specified disclosure, care in carrying out transactions, written conflict of interest policies and policies for staying in compliance with the regulation; (ii) requiring registered investment advisers and registered broker-dealers to provide to retail clients a Form CRS relationship summary setting forth sch things as the services offered, fees and costs, disciplinary history and where further information can be found; (iii) an interpretation of the Investment Advisers Act clarifying that, as part of its fiduciary duties, an adviser has a duty of loyalty and duty of care to the retail investor; and (iv) an interpretation of the exclusion under the Investment Advisers Act for advice that is “solely incidental” if the advice is given solely in connection with a primary business of effecting transactions.  Regulation Best Interest and Form CRS will become effective 60 days after publication in the Federal Register.  The new package of regulations raises the required duties to retail investors, but is not unexpected.   Advisers and broker-dealers dealing with retail investors will need to be even more cognizant of their duties to the investor.  It is clear, though, that the SEC Board is aware of the reduction in numbers of registered advisers and broker-dealers, and will be watching the impact of the new rules and interpretations carefully.