Category Archives: SEC

Best Interest Standard of Care for Advisors #17


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Regulation Best Interest: Education vs. Recommendation (Rollovers Part 3)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

In my last post, Best Interest for Advisors #16, I pointed out that, if a broker-dealer’s advisor recommended that a participant rollover his or her benefits in a workplace retirement plan to an IRA, it would be subject to the best interest standard of care (when Reg BI applies on June 30, 2020). (Best Interest for Advisors #15 discussed the process and factors to be considered to make a best interest rollover recommendation.)

My last post then went on to discuss rollover education and information . . . as opposed to a rollover recommendation. If properly done, the education and information approach can be used by broker-dealers if they are concerned about the difficulty of gathering the information for a rollover recommendation and the process for evaluating that information.

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Best Interest Standard of Care for Advisors #16


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Regulation Best Interest: Education vs. Recommendation (Rollovers Part 2)

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

In my last post, Best Interest for Advisors #15, I discussed the “best interest” standard for broker-dealers and their advisors and how it applies to rollover recommendations. (Keep in mind that Reg BI doesn’t apply until June 30, 2020.)

Until then the suitability standard applies and it only covers recommendations that involve securities transactions, for example, recommendations to rollover from a 401(k) plan, which requires that a participant liquidate the securities in his 401(k) account. When Reg BI applies, all rollover recommendations from all plans (e.g., including pension plans—where the participant doesn’t liquidate investments in order to rollover and non-ERISA plans, such as government plans).

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Best Interest Standard of Care for Advisors #12


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Regulation Best Interest: An Overview of the Changes.

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

The SEC’s Reg BI establishes a best interest standard of care for investment recommendations to retail customers by broker-dealers and their registered representatives. In addition, Reg BI requires new disclosures and mitigation of advisor’s financial conflicts of interest. The SEC also issued an Interpretation of the Standard of Conduct for Investment Advisers, which clarified the SEC’s position on a number of issues related to the fiduciary standard and conflicts of interest for RIAs. There were two other pieces of guidance: the Form CRS Regulation (which requires a simplified front-end disclosure by broker-dealers and investment advisers); and the Solely Incidental Interpretation for limited discretion and monitoring of accounts by broker-dealers.

A starting point for understanding the requirements of Reg BI (which are applicable on June 30, 2020) is to compare it to existing standards, e.g., the suitability rule. In its release for the final regulation, the SEC did just that. Here it is in the SEC’s words (with my comments added):

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Best Interest Standard of Care for Advisors #11


broker-dealers, reg BI, SEC

Regulation Best Interest: An Overview of the Requirements

The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”

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The SEC’s Reg BI establishes a best interest standard of care for investment recommendations to retail customers by broker-dealers and their registered representatives. In addition, Reg BI requires new disclosures and mitigation of advisor’s financial conflicts of interest. The SEC also issued an Interpretation of the Standard of Conduct for Investment Advisers, which clarified the SEC’s position on a number of issues related to the fiduciary standard and conflicts of interest for RIAs. There were two other pieces of guidance: the Form CRS Regulation (which requires a simplified front-end disclosure by broker-dealers and investment advisers); and the Solely Incidental Interpretation for limited discretion and monitoring of accounts by broker-dealers.

My last two posts, Best Interest for Advisors #9 and #10, focused on the requirement in Reg BI that a recommendation to a retail customer must include consideration of the cost of the investment or strategy. I started with that issue because I believe that it will be highly impactful over the long run. However, this article starts at the beginning . . . an overview of the changes made by Reg BI. In the release to the final regulation, the SEC explained Reg BI’s requirements (applicable on June 30, 2020):

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If The SEC Is Telling You To Ask Your Financial Advisor These Questions, You Probably Should


broker-dealers, SEC

The SEC has issued a four-part rules package for broker-dealers and investment advisers that includes the new Form CRS Regulation. The regulation requires broker-dealers and investment advisers to give short disclosure documents to all customers and potential customers beginning June 30, 2020.

The rule also requires that the new disclosure document provide investors with a series of questions that they should ask their adviser. Don’t you think you should know what those questions are . . . before you’re asked? The questions and my comments are in an article I wrote for my Forbes blog.

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Best Interest Standard of Care for Advisors #8


401(k), 403(b), registered investment advisers, SEC

Senior Clients: The SEC is looking at practices of RIAs

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the eighth of the series about Best Interest Standard of Care for Advisors.

The SEC has initiated examinations of investment advisers concerning their practices in working with Senior Clients. According to the SEC, a “ ‘Senior Client’ is defined as any retail advisory client who is age 62 or older, retired, or transitioning to retirement, including accounts of deceased clients, and retail clients in joint accounts with at least one individual meeting this definition.”

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Best Interest Standard of Care for Advisors #6


best interest, fiduciary, prudent, SEC

What Does Best Interest Mean . . . In the Real World? (Part 3)

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the sixth of the series about the Best Interest Standard of Care.

In my last two posts (Best Interest Standard of Care for Advisors #4 and #5), I discussed the definition of the Best Interest standard of care, with a particular focus on the duty to exercise care, skill, prudence and diligence in developing recommendations for investors. Those articles commented on the consistency in the Best Interest and fiduciary standards being developed by the SEC and several states (including New York), as well ERISA’s duty of care and duty of loyalty.

Bests #9 discussed the similarities of the standards of care and Bests #10 talked about the consideration of costs. This article focuses on considerations of the quality of the products and services and on portfolio investing.

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Best Interest Standard of Care for Advisors #5


best interest, reg BI, registered investment advisers, SEC

What Does Best Interest Mean . . . In the Real World? (Part 2)

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the fifth of the series about the Best Interest Standard of Care.

My last article, Best Interest Standard of Care for Advisors #4, discussed different definitions of a “best interest” standard of care. The point of that article is that, while there may be slight differences in the wording, the rules converge to require that an advisor (and the advisor’s supervisory entity) act with care, skill, diligence and prudence to make recommendations that are in the best interest of the investor. This article discusses how the standard applies to specific circumstances.

As background, there are three parts to any best interest standard. The first is that the advisor engage in a process–carefully, skillfully, diligently and prudently–to develop the recommendation. That process is measured by an objective standard . . . what are the relevant factors that a knowledgeable professional advisor would consider and how would that hypothetical advisor evaluate those factors. The second is that the advisor act with loyalty to the investor. The advisor cannot put his interests ahead of the investor’s. The third is that the recommendation appropriately consider the investor’s profile (e.g., the needs and circumstances of the investor).

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Best Interest Standard of Care for Advisors #4


401(k), 403(b), best interest, DOL, prudent, reg BI, registered investment advisers, SEC

What Does “Best Interest” Mean? (Part 1)

I am writing two series of articles that together are called “The Bests.” One is about Best Practices for plan sponsors, while the other is about the Best Interest Standard of Care for advisors. Each series is numbered separately to make it easier to identify the subject that is most relevant to you.

This is the fourth of the series about the Best Interest Standard of Care.

“Best Interest” has become part of the American lexicon . . . as an aspirational goal or a demanding standard—depending on the point of view. But, what does best interest mean? It may mean different things to different people . . . and perhaps even to different regulators. However, I believe that most people would agree on the definition in this article.

As I read the guidance issued by the Department of Labor (DOL), the Securities and Exchange Commission (SEC), and New York State, there are actually two different best interests. The first is a standard of care and the second is a duty of loyalty. Of the two, the duty of loyalty is the easiest to define because, in all of the guidance it boils down to a requirement that an advisor cannot put his interest ahead of the investor’s.

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