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SEC Sets Meeting to Adopt Reg BI

SEC commissioners will discuss and consider adoption of the much-anticipated Reg BI in a June 5, 2019 open meeting. According to Pensions & Investments, the release of Reg BI is expected to be lengthy and complex. The proposals received approximately 6,000 comments on the SEC’s website. The SEC’s notice outlines four agenda items up for adoption: (i) establishing a standard for broker-dealers and their associated persons when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities; (ii) new and amended rules and forms to require advisers and broker-dealers to provide a brief relationship summary to retail investors; (iii) whether to publish an interpretation of the standard of conduct for investment advisers; and (iv) whether to publish an interpretation of a provision under the Investment Advisers Act that exempts broker-dealers giving investment advice from registration if their advice is “solely incidental” to their business as a broker-dealer and they do not receive special compensation for the advice. Industry experts at a recent Finra conference predicted that changes to the regulatory standard of care will cause major shifts in the broker-dealer industry. Industry participants said they would be watching the final rules for changes in definitions in terms such as “advisor” and provisions regarding disclosures of fees and conflicts on interest. Finra executives in other media reports said they expected that Reg BI may mitigate the need for Finra’s suitability standard for brokers. Meanwhile, at a recent SEC conference, academics presented a paper titled Fiduciary Duty and the Market for Financial Advice. The paper evaluates claims that regulations such as Regulation BI would improve investor advice and result in cost savings. The academics asserted that establishing a fiduciary duty does not solely increase the cost of doing business, but it has the intended effect of directly improving financial advice and increasing the array of products available to investors. “[I]mposing fiduciary duty on broker-dealers shifts the set of products they sell to consumers, away from variable annuities and towards fixed indexed annuities. Within variable annuities, fiduciary duty induces a shift towards lower-fee, higher-return annuities with a wider array of investment options.” 

 
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