SEC proposes best interest rules for U.S. broker-dealers

By Staff | April 19, 2018 | Last updated on April 19, 2018
3 min read

The U.S. Securities and Exchange Commission (SEC) proposed new requirements Wednesday for investment broker-dealers pertaining to fees, standard of care and conflicts of interest.

The two new requirements are:

  • to act in the best interest of clients when making recommendations, related to disclosure, standard of care and conflict of interest management; and
  • to provide a standardized, short-form summary of their practices, services and fees, and of any conflicts of interest that need to be disclosed, to clients.

As part of these requirements, the SEC says in a release that some broker-dealers, and their associated persons, “would be restricted from using, as part of their name or title, the terms ‘adviser’ and ‘advisor’ […].” The terms are “so similar to ‘investment adviser’ that their use may mislead retail customers into believing their firm or professional is a registered investment adviser,” the SEC says.

The regulator’s package of rule proposals, referred to as Regulation Best Interest, has been designed “to enhance the quality and transparency of investors’ relationships with investment advisers and broker-dealers,” the release says.

The SEC also seeks to address investor confusion about the duties of U.S. advisers. The commission wants to “reaffirm and, in some cases, clarify the commission’s views of the fiduciary duty that investment advisers owe to their clients,” so that clients “have greater clarity about advisers’ legal obligations.”

The public comment period on the proposals will be open for 90 days, following publication of the documents in the Federal Register.

The proposals come after years of industry research, the SEC says. Since the mid-1990s, it’s been “considering issues relating to changes in the market for investment advice, retail investor understanding of their advice relationships, and broker-dealer conflicts of interest […].”

Most recently, SEC chair Jay Clayton sought input on the standards of conduct for investment professionals. Clayton was nominated and sworn in by President Donald Trump in 2017.

Read: SEC looking at title reform as part of fiduciary rule: report

“I believe we can achieve these objectives while simultaneously preserving investors’ access to a range of products and services at a reasonable cost,” Clayton says, in the release. “The package of rules and guidance that the Commission proposed today is a significant step to achieving these objectives on behalf of our Main Street investors.”

This rules package “comes after more than a decade of regulatory deliberation over how to address conflicts of interest […],” Reuters reported. It would replace the Obama-era fiduciary rule, which was overturned in March by an appeals court.

The Reuters report said commissioner Kara Stein, a member of the SEC since 2013, was critical of the proposed rule, noting that the Financial Industry Regulatory Authority already requires the firms it oversees to follow a best interest standard—and that could lead to regulatory confusion.

On Wall Street reported that the proposal “falls short of the stringent fiduciary duty that some investor advocates have called for.” While broker-dealers would have to act in a client’s best interest, a fiduciary requirement wouldn’t be applied.

Read the full SEC release.

In Canada, debate continues around a best interest standard and titles reform, along with discussions of a national regulator. The industry is waiting for more on CSA’s 33-404, while the latest comment period for the Ontario government’s proposed titles reform just ended.

Read: Is regulatory uncertainty the new norm for Ontario?

And, for more regulatory news, read:

More work needed from Ontario on titles reform: IIAC

FSCO proposes guideline to treat clients fairly

IIROC takes action as advice evolves

OBSI’s top investor complaints of 2017 staff


The staff of have been covering news for financial advisors since 1998.