/SEC Proposed Regulation Best Interest: Its Impact on Broker-Dealers

SEC Proposed Regulation Best Interest: Its Impact on Broker-Dealers

WHAT HAPPENED?

On April 18th, the Securities and Exchange Commission (SEC) voted on a proposal known as Regulation Best Interest, a set of rules and interpretations intended to improve the quality and transparency of investors’ relationships with investment advisers and broker-dealers while protecting access to a variety of investment relationships and products.

Under proposed Regulation Best Interest, the SEC plans to implement certain requirements specifically for broker-dealers.  For instance, a broker-dealer would be required to satisfy a three-part Best Interest Obligation that includes:

  1. a disclosure obligation;
  2. a duty of care obligation; and
  3. a conflict of interest obligation.

The SEC has not explicitly defined “best interest,” however according to its release, whether a broker-dealer acted in the best interest of its’ retail customer will depend on the facts and circumstances of the particular recommendation and on the profile of the particular retail customer.

WHAT DOES THIS MEAN FOR ME?

The Best Interest Obligation applies to broker-dealers when a recommendation is made of any securities transaction (including an investment strategy involving securities) to a retail customer.

According to the SEC, dually-registered broker-dealers would only be required to comply with Regulation Best Interest when making a recommendation in the role of a broker-dealer.

For more information about the SEC proposed Regulation Best Interest and its impact on registered broker-dealers, please reach out to Fairview® directly.

About the Author:

Fairview®
Founded in 2005 with the goal of developing streamlined back office solutions for investment advisers, Fairview® is now servicing investment advisers, foundations and funds with over $185 billion in collective assets.