Tag Archives: Care Obligation

Best Interest Standard of Care for Advisors #32

Regulation Best Interest: Best Interest and Suitability—How They Differ (Part 3)

Regulation Best Interest (Reg BI) imposes a “best interest” standard of care on broker-dealers for their recommendations of securities and investment strategies to retail customers. That raises the question, what does best interest mean and how does it differ from suitability?

(Note:  While the discussion in this article is based on Reg BI’s best interest requirements for broker-dealers, the SEC has also imposed a best interest standard on investment advisers. As a result, investment advisers should also be attentive to these issues.)

As I explained in Parts 1 and 2 of this article (Best Interest Standard of Care for Advisors #30 and #31), the difference between best interest and suitability is a hard question without an easy answer. However, based on the SEC’s discussion in the Adopting Release, I have developed examples of where best interest appears to impose a more demanding standard than suitability. These examples focus on the Reg BI requirement that broker-dealers (and their registered representatives) consider costs in the development of recommendations. While costs are not the only factor to be considered, the SEC says that the best interest rule makes cost a more important factor than it was under the suitability standard.

Continue reading Best Interest Standard of Care for Advisors #32

Share

Best Interest Standard of Care for Advisors #12

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):

Continue reading Best Interest Standard of Care for Advisors #12

Share

Best Interest Standard of Care for Advisors #11

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.”

______________________________________________________________________

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):

Continue reading Best Interest Standard of Care for Advisors #11

Share