Two SEC Rules Impact Broker-Dealers and Investment Advisors, effective Sept. 10, 2019

by | Sep 9, 2019 | Tax and Accounting Desk

The SEC issued two final rules affecting broker-dealers and investment advisors in an open public meeting on June 5, 2019, which are effective September 10, 2019.

These new rules are designed to increase investor protections and require broker-dealers to adhere to a new standard of conduct, which goes beyond the basic suitability standards currently in place. Although this is still not equivalent to the fiduciary standard required by investment advisors, this new rule will result in big changes with broker-dealers and how they manage and avoid conflicts of interest.

Regulation Best Interest-Standards of Conduct for Broker-Dealers
This new ruling becomes effective September 10, 2019 and establishes a standard of conduct for broker-dealers and associated persons of a broker-dealer when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities.

The concept and background of the rule is seemingly straight-forward: it requires all broker-dealers and associated persons, when making a recommendation of any securities transactions or investment strategy involving securities to a retail customer, to act in the best interest of the retail customer at the time the recommendation is made without placing financial or other interest of the broker-dealer or associated person making the recommendation ahead of the interest of the retail customer.

There are several nuances to the rule for broker-dealers and investment advisors to be in compliance. To learn more, read the full text here:

Form CRS-Client Relationship Summary (Amendments to Form ADV)
This ruling, which becomes effective September 10, 2019, requires registered investment advisors and registered broker-dealers to provide a brief relationship summary to retail investors.

Form CRS, “Client Relationship Summary,” will be a new XML (Extensible Markup Language) format filing by Broker-Dealers and Investment Advisors. The form is designed to make information publicly available and easy to understand for investors. Such information will include fees, conflict of interests among other items. The disclosures further reiterate the rules under “Regulation Best Interest,” providing an overall environment in which Broker-Dealers and Investment Advisors clients’ best interests would be served.

More details can be found here:

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