(Reuters) — The U.S. Securities and Exchange Commission published a staff bulletin on Thursday providing guidance on how brokers and investment advisers must put their clients’ interests ahead of their own when providing advice and recommendations to retail investors.
The guidance, which is the third in a series of such documents, specifically clarifies brokers’ and advisers’ so-called “duty of care” under the SEC’s longstanding investment adviser fiduciary standard and its regulation Best Interest Rule, adopted in 2019.
While the staff’s guidance cannot form the basis of an SEC regulatory action, an increasing number of the regulator̵7;s recent regulatory actions against advisers have focused on duties of care, so the information could be helpful, an SEC official told reporters in a briefing.
The duties of care have three general categories: understand the potential risks, rewards and costs associated with investments and strategies; understand the retail investor who will receive the recommendations or advice; and based on that knowledge and a consideration of reasonably available alternatives, which investments or strategies are in the investor’s best interests.
Reg BI is a package of rules that require brokers to disclose potential conflicts in the fees investors pay and the commissions brokers earn when providing financial advice. The rules also require brokers to raise the standard of giving advice to serve the client’s best interests when recommending shares, funds and other financial products.
The Republican-led SEC finalized Re BI in 2019 in what was widely seen as a win for Wall Street following its 10-year battle to regulate the investment advice industry, after fighting a tougher proposal from the Department of Labor.