On June 5, 2019, the Securities and Exchange Commission (SEC) voted 3-1 to adopt a series of proposals intended to “substantially enhance” the standards of conduct for financial professionals.
First and foremost, the SEC adopted Regulation Best Interest (Reg BI), a new rule establishing an updated standard of conduct for broker-dealers and associated persons of broker-dealers when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer. The standard of conduct – which is higher than the current suitability requirement, but falls short of a fiduciary standard – is “to act in the best interest of the retail customer at the time a recommendation is made without placing the financial or other interest of the broker-dealer or natural person who is an associated person making the recommendation ahead of the interest of the retail customer.” Notably, the SEC does not define “best interest,” an omission criticized by SEC member Robert Jackson Jr., the lone dissenter from approval of the rule package because he has supported adoption of a stricter standard.
The commissioners also adopted Form CRS, which are new rules requiring registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors.
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