SEC Seeks Public Comment on Standards of Conduct for Investment Advisers and Broker-Dealers

In a recent public statement, Securities and Exchange Commission (“SEC”) Chairman Jay Clayton announced that the SEC is moving forward with its review of the standards of conduct mandates for investment advisers and broker-dealers and he welcomes the Department of Labor (“DOL”) Secretary Acosta’s invitation to “engage constructively” during their respective reviews of such standards of conduct.  To that end, Chairman Clayton said “I believe clarity and consistency — and, in areas overseen by more than one regulatory body, coordination — are key elements of effective oversight and regulation.”

Chairman Clayton acknowledged the fact that the SEC has been reviewing this area for a number of years, but noted that due to some significant changes in the marketplace, business models and regulatory developments he believes further assessment is necessary.  To assist in their review, the SEC is looking for public comment and has created a webform and e­mail box (rule-comments@sec.gov) for submission.

Specifically, the SEC is seeking input from the public on a number of questions.  Some of the topics of the questions include:

  • Confusion over the type of professional firm that is providing retail investors with investment advice, and the standards of conduct applicable to different types of relationships.
  • Whether potential conflicts of interest related to the provision of investment advice to retail investors in various circumstances have been appropriately identified and addressed.
  • How market developments and advances in technology are impacting the ways in which retail investors are obtaining advice (e.g., robo-advisers, fintech).
  • Whether there is a trend in the provision of retail investment advice toward a fee-based advisory model and away from a commission-based brokerage model.
  • Efforts to comply with the Fiduciary Rule, which some retail investors and market participants have already started to implement, as well as their experiences.
  • The costs and benefits of having multiple standards of conduct for accounts subject to the DOL Rule and those that are not, as well as the existing differences between the standards of conduct.

For the complete list of questions and issues, please see Chairman Clayton’s public statement from June 1, 2017.

The DOL’s Fiduciary Rule became effective on June 9, 2017, along with two new applicable exemptions, the Best Interest Contract Exemption (BICE) and the Principal Transactions Exemption.  For advisers relying on one or both of these new exemptions, they only need to adhere to the “impartial conduct standards” until the DOL complete their review of the rule.

For more information on the above or how the DOL’s Fiduciary Rule impacts investment advisers please contact us at (619) 278-0020, or email info@corecls.com. Thank you.