SEC to Vote June 5th on Regulation Best Interest

SEC to Vote June 5th on Regulation Best Interest

The U.S. Securities and Exchange Commission ("SEC") scheduled a June 5th vote on its Regulation Best Interest rulemaking package.  SEC will consider whether to adopt a new rule to establish a "best interest" standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities.  The existing requirement is that broker-dealers recommend "suitable" investments for clients, falling short of a fiduciary standard.  The proposed rule will establish new standards on what the SEC considers inappropriate conflicts of interest, and will introduce a disclosure obligation, a diligence and care obligation, and conflicts of interest obligation. 

The vote will include three additional items:

  • Form CRS - SEC considering whether to adopt new and amended rules and forms to require registered investment advisers ("RIA") and registered broker-dealers to provide a brief relationship summary to retail investors;

  • Standard of Conduct of Investment Advisers - SEC considering whether to publish a SEC interpretation of the standard conduct for investment advisers; and

  • Interpretation of "Solely Incidental" - SEC considering whether to publish a SEC interpretation of the solely incidental prong of section 202(a)(11)(C) of the Investment Advisers Act of 1940 (the "Act").  This refers to the Act that exempts a broker or dealer from registering as an RIA if the advice they provide is "solely incidental" to the conduct of their business.

The rule outline would require that broker-dealers act in the best interest of their clients, a change from the current suitability standard that broker-dealers follow. 

To read the proposed rule, the press release or the agenda for the June 5th meeting, please click on the appropriate link below.   


If you have any questions about this Alert, please contact 

Daniel G. Viola at 212.573.8038,   dviola@sadis.com or 

Eliott Frank at 212.573.8148, efrank@sadis.com.