Regulation Best Interest
In the proposals, the SEC acknowledged the need to address retail investor confusion about the relationships they have with investment professionals and the harm that may result from the confusion.
Its proposed package is called the Regulation Best Interest.
The rules and interpretations are intended to 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 regulation would require broker-dealers to act in the best interest of retail customers when making a recommendation of any securities transaction or investment strategy involving securities.
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 SEC stated.
In addition, the US regulator proposed an interpretation to reaffirm and, in some cases, clarify its views of the fiduciary duty that investment advisers owe to their clients, giving greater clarity about advisers’ legal obligations.
Investor confusion
The SEC also proposed addressing investor confusion about the nature of adviser/client relationships through a short-form disclosure document called the customer (or client) relationship summary (CRS).
It is intended to provide retail investors with simple, easy-to-understand information about the nature of their relationship with their investment professional.
Finally, the SEC proposed restricting certain broker-dealer firms and their financial professionals from using the terms ‘adviser’ and ‘advisor’ in their name or title.
The SEC expressed concern that it may mislead retail customers into believing that a firm or professional is a registered investment adviser.
Achieve and preserve
SEC chairman Clayton said: “The tireless work of the SEC staff has proven to me that we can increase investor protection and the quality of investment services by enhancing investor understanding and strengthening required standards of conduct.
“Importantly, I believe we can achieve these objectives while simultaneously preserving investors’ access to a range of products and services at a reasonable cost. The package of rules and guidance that the Commission proposed today is a significant step to achieving these on behalf of our Main Street investors.”
The proposals are open for public consultation for 90 days following publication of the documents in the Federal Register.
The SEC commissioners will hold a second vote after the 90 days has lapsed on whether to make the regulations binding.
