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Tuesday, September 22, 2020

What SEC Best Interest Proposals Mean for Investment Advisors

In April, the Securities and Exchange Commission issued three proposals concerning the standards of care for investment advisors and broker-dealers. RIAs should review and understand these proposals because they may, if finalized, make material changes in the regulation of investment advisors and will introduce a new, and potentially confusing, best interest standard for broker-dealers. While the RIA Interpretation is consistent with recent statements and enforcement activities by the SEC, it may require changes by RIAs—particularly concerning disclosures of conflicts of interest.

The Interpretation is a statement of the SEC’s current positions on RIA duties. It would be a tactical mistake to view this only as a proposal and to defer its consideration. This paper focuses on the RIA Interpretation and its impact on investment advisors. In addition, this paper briefly discusses the proposed Form CRS relationship summaries and highlights some of the provisions that impact RIAs.

It also addresses the question: What should investment advisors do now? In the interest of brevity, this paper limits its focus to RIA issues in the SEC’s proposals. It does not cover all of the SEC’s positions in the Interpretation nor, at this time, will we tackle Regulation Best Interest or take an in-depth look at the Client Relationship Summary proposal.

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