As the June 30 compliance date for the Securities and Exchange Commission’s Regulation Best Interest approaches, the agency is reminding broker-dealers when they can, and can’t, use the term “advisor” or “adviser.”
In updated frequently asked questions guidance, the SEC states that the agency “presumes that the use of the terms ‘adviser’ or ‘advisor’ in a name or title by a broker-dealer that is not also registered as an investment adviser is a violation of the requirement to disclose the broker-dealer’s capacity under” Reg BI’s Disclosure Obligation.
That said, the SEC “did not expressly prohibit the use of these names and titles by broker-dealers.”
Broker-dealers, the agency continues, “may use these terms when they are acting in a role specifically defined by federal statute that does not entail providing investment advisory services to retail customers, for example, as a municipal advisor, commodity trading advisor, or advisor to a special entity.”
A broker-dealer that provides advice in other capacities outside the context of investment advice to a retail customer may in its discretion use the terms “adviser” and “advisor.”
The SEC explains that in most instances, however, when a broker-dealer uses the terms in its name or title in the context of providing investment advice to a retail customer without also being an RIA, it will be presumed to violate Reg BI’s disclosure obligation.
Broker-dealers with an affiliated RIA are also prohibited from using the names, but a broker-dealer that is also a state-registered advisor can use the terms.
In the SEC’s view, a state-registered investment advisor would be considered to be “registered as an investment advisor” for purposes of this presumption, the agency states.