Evolution of Fiduciary Rules Begins to Take Shape in SEC

On April 18, 2018, the SEC voted to propose several new rules and reforms related to fiduciary standards. The package intends to raise and clarify standards of conduct for broker-dealers and investment advisers, and to provide clarity regarding fees, conflicts and other material matters. It also aims to ensure that the standards can be understood by retail investors, are implementable by industry professionals, and will be enforceable by the regulators.

First, Proposed Regulation Best Interest would require broker-dealers to act in the best interest of its retail customers; a broker-dealer would not be allowed to put its financial interests ahead of the interests of a retail customer’s in making recommendations. While some of the Commission members felt the naming of this regulation could confuse retail investors, overall, they felt it was a step in the right direction.

The Commission also generally supported the implementation of Form CRS (Customer Relationship Summary), a disclosure document of no longer than four pages, that serves to describe principal services offered, legal standards of conduct that apply, fees customers will pay, and material conflicts. Form CRS is geared toward providing retail investors with easy-to-understand information that would supplement more detailed disclosures.

The proposal will also include labeling rules pertaining to the use of the terms “advisor” and “adviser.” Certain broker-dealers would be restricted from using the terms as part of their name or titles with retail investors. The staff discussed how the advisor/adviser terminology has been confusing or misleading for many retail investors, and in its proposal, indicated that restricting use would provide clarity as to who is providing the advice.

Next Steps

The SEC is opening the proposals to public and industry comment for 90 days to ensure the initiatives are clear, implementable, and enforceable. Several of the Commission members felt more work needs to be done to reduce ambiguity and add further clarity, but generally they were in support of the spirit of the 1,000-page proposal and in receiving public comments to improve upon it. The SEC developed a two-page tear sheet meant to summarize the hefty proposal so that retail investors can engage in the discussions and the commission can consider the implications of the proposals on the public. The Chairman further recommended that the next steps should focus on Form CRS, the Relationship Summary document, which will be a daunting task in and of itself.

The full proposal and related materials are available here. Ascendant recommends you discuss the proposals with your compliance consultant and encourages your comments.

Related Content

Latest Content

Regulation Best Interest, Cybersecurity Top Concerns at IAA 2019 Compliance Conference

The Investment Adviser Association (IAA) represents the interests of investment advisers in Washington D.C., and the IAA Investment Adviser Compliance Conference 2019 was a forum for the discussion of future potential rulemaking. Cybersecurity and Fiduciary Rule considerations were headline topics, with custody and marketing right behind. The following is a summary of key issues discussed … Continued

The Challenges of Building a Global Compliance Program

Compliance programs face challenges in balancing global requirements with local exceptions while incorporating the fast pace of regulatory change, addressing critical business needs and obtaining the necessary resources necessary to manage the program. Trends and thinking on the subject were center stage at the recent CSS London event “Looking at the Year Ahead – Global … Continued

Coming to America – California Adopts GDPR-Like Privacy Regulation

After a number of firms struggled last year to get their marketing and information systems into compliance with the EU’s General Data Protection Regulation (GDPR), advisers to U.S. clients will soon be facing similar requirements on the home front.  On the heels of the Cambridge Analytica scandal, California enacted the California Consumer Privacy Act of … Continued

SEC and FINRA 2019 Examination Priorities

The SEC and FINRA have recently released their examination priorities for 2019. These releases provide insight into regulatory priorities and serve as guidance for a firm in evaluating its compliance program. We will discuss topics covered in these releases, including: Protecting retail investors Fees and expenses Disclosure Conflicts of interest Suitability Protecting senior investors Trading … Continued

SEC Reopened After 35-Day Government Shutdown

SEC Chairman Jay Clayton announced on Saturday, January 26 that with an agreement reached to end the government shutdown, the “Commission has resumed normal staffing levels and is returning to normal operations.” In total, about 94% of the commission’s approximately 4,400 employees had been furloughed during the 35-day shutdown, according to its operations plan. In a … Continued

Mailing List

Subscribe to the Ascendant Compliance email list for the latest compliance resources, conferences, ComplianceCasts™, and more.

Loading form...

Contact Us

Ascendant works together with clients to identify and assess critical needs through customized plans. If you need assistance with compliance functions, regulatory services, cybersecurity or technology tools, we’d love to speak with you.