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

by Eazy_DuzIt

www.sec.gov/news/press-release/2018-68

Washington D.C., April 18, 2018 —

The Securities and Exchange Commission today voted to propose a package of rulemakings and interpretations 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.

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.

In addition to the proposed enhancements to the standard of conduct for broker-dealers in Regulation Best Interest, the Commission proposed an interpretation to reaffirm and, in some cases, clarify the Commission’s views of the fiduciary duty that investment advisers owe to their clients. By highlighting principles relevant to the fiduciary duty, investment advisers and their clients would have greater clarity about advisers’ legal obligations.

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. Investment advisers and broker-dealers would also need to disclose their registration status with the Commission in certain retail investor communications.

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.

See link for more details.

 

tl;dr: No more Wolf on Wall Street shenanigans.

Currently, brokers are only required to recommend investments that are “suitable” to their client – a very loose interpretation that brokers have been taking advantage of for many years. This proposal would change that requirement to meet a new standard of meeting the client’s “best interest”. Also, there is currently no standard for someone to call themselves a “financial advisor”. This legislation would put in place certain standards to be considered a financial advisor.