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Regulation and Compliance > Federal Regulation

SEC Sets June 5 Vote on Regulation Best Interest

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The Securities and Exchange Commission will vote June 5 on whether to adopt Regulation Best Interest, according to an SEC meeting notice.

The commission will also decide on June 5 whether to adopt new and amended rules and forms to require registered investment advisors and registered broker-dealers to provide a brief customer relationship summary, or Form CRS, to retail investors, and whether to publish a commission interpretation of the standard of conduct for investment advisors.

The SEC will also consider whether to publish a commission interpretation of the “solely incidental” prong of section 202(a)(11)(C) of the Investment Advisers Act of 1940.

The interpretation of “solely incidental” is “a new part of the rulemaking package,” Karen Barr, president and CEO of the Investment Adviser Association, told ThinkAdvisor in a Friday email.

This section “provides that the term ‘investment adviser’ does not include any broker or dealer whose performance of investment advisory services is solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation therefor,” explains George Michael Gerstein of Stradley Ronon.

“Questions about ‘solely incidental’ were embedded in the proposing releases and the SEC may be confirming its prior position that discretionary investment advice is not ‘solely incidental’ to brokerage activities, among other possible elements of this item,” Barr said.

The IAA, Barr continued, “had asked the commission to more appropriately define advice that is considered not to be solely incidental to brokerage activities. At a minimum, we urged the commission to confirm its prior position that discretionary investment advice is not solely incidental to brokerage services.  We hope that is what the commission is doing with respect to this item. We also hope that the SEC will address firms that hold themselves out as providing ongoing investment advice when they are not subject to a fiduciary duty.”

The Labor Department will issue a notice of proposed rulemaking regarding a new fiduciary rule in December, according to the department’s spring regulatory flexibility agenda. An earlier unveiling of a Labor fiduciary plan could be likely given the SEC vote in early June.

Robert Colby, chief legal officer for the Financial Industry Regulatory Authority, said on May 17 at FINRA’s annual conference in Washington that with Reg BI, the SEC is “trying to save the broker-dealer business as we know it.”


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