SEC Staff Issues Bulletin on Standards of Conduct for Broker-Dealers and Investment Advisers

On March 30, 2022, the employees of the SEC’s Division of Buying and selling and Markets printed a bulletin in question-and-answer format that reiterates the requirements of conduct for broker-dealers below Regulation Greatest Curiosity (Reg BI), and for funding advisers below the Investment Advisers Act of 1940’s fiduciary commonplace when making account suggestions to retail traders. The bulletin reminds broker-dealers and advisers of their obligations to behave in the most effective curiosity of retail traders and to not place their very own curiosity above these of traders. The next is a abstract of key factors addressed within the bulletin:

  • Monetary professionals dually licensed as broker-dealers and funding advisers should observe the relevant commonplace when making account suggestions to retail traders primarily based on the capability by which they’re appearing. In some instances, each Reg BI and the Advisers Act could apply.

  • Below Reg BI, broker-dealers should disclose all materials details in regards to the scope and phrases of their relationship with the retail investor, together with the capability by which they’re appearing. Equally, funding advisers have an obligation of loyalty to reveal all materials details referring to the advisory relationship, together with the capability by which they’re appearing.

  • Below Reg BI and the fiduciary commonplace, broker-dealers and funding advisers, respectively, could advocate an account to a retail investor solely after they have an affordable foundation to imagine that the account is within the retail investor’s finest curiosity. Corporations ought to disclose materials details, together with conflicts of curiosity, about limitations on their product or account choices.

  • In figuring out whether or not an account suggestion is in a retail investor’s finest curiosity, corporations should have an affordable foundation to imagine that an account is in a retail investor’s finest curiosity. To determine this perception, corporations ought to think about, amongst different issues, a retail investor’s monetary state of affairs and wants, funding targets and monetary targets, and some other info the retail investor could disclose. A retail investor’s stage of monetary sophistication and the extent of account monitoring by the agency must also be thought-about. Corporations must also think about account traits, together with the providers and merchandise supplied within the account, prices, out there different account sorts and whether or not the account presents the providers the retail investor requests. Corporations ought to decline to make account suggestions in the event that they lack enough info to moderately imagine {that a} suggestion is a retail investor’s finest curiosity.

  • In contemplating account prices, corporations ought to think about each direct prices, reminiscent of account charges, commissions and transaction prices, and oblique prices, reminiscent of these related to cost for order move and money sweep applications. Though corporations will not be obligated to advocate the least costly sort of account, when recommending the next value account, they need to have an affordable foundation to imagine the account is in a retail investor’s finest curiosity primarily based on different elements.

  • Dealer-dealers and funding advisers ought to doc the idea for account suggestions to retail traders in accordance with relevant recordkeeping necessities. The employees famous that it might be troublesome for a agency to evaluate the adequacy and effectiveness of its insurance policies and procedures or to show compliance with its obligations to retail traders with out documenting the idea for its suggestions.

  • In making suggestions concerning retirement account rollovers, corporations ought to think about elements reminiscent of prices, out there service ranges, current account options, together with prices, out there funding choices, the flexibility to withdraw funds penalty-free, required minimal distributions, protections from collectors and authorized judgments and holdings of employer inventory. The employees additionally famous that some rollovers are topic to Division of Labor rules.

The employees supplied a non-exhaustive listing of finest practices for corporations to fulfill their obligations, together with avoiding compensation thresholds tied to opening sure sorts of accounts, adopting and implementing insurance policies and procedures to cut back or eradicate incentives for workers to favor one sort of account over one other, implementing supervisory procedures to observe rollovers from one account sort to a different and adjusting compensation for professionals who fail to handle conflicts of curiosity in reference to account suggestions.

The employees bulletin is offered here.

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