SEC reminds firms to prioritize retail investors’ interests

Best interest rules and fiduciary standards should produce similar outcomes for investors, the U.S. Securities and Exchange Commission (SEC) suggested in new guidance on prioritizing clients’ interests.

In a staff bulletin on the standards of conduct for broker-dealers and investment advisers, the regulator said that both its conduct rules for brokers – known as Regulation Best Interest (Reg BI) – and the fiduciary standard for investment advisers are based on similar principles. One of those is an obligation  to act in retail investors’ best interests, and to prioritize investors’ interests.

“Although the specific application of Reg BI and the IA fiduciary standard may differ in some respects and be triggered at different times, in the staff’s view, they generally yield substantially similar results in terms of the ultimate responsibilities owed to retail investors,” SEC said in its guidance.

The bulletin sets out the views of the regulator’s staff on how brokers, investment advisers, and their reps, can meet their obligations to retail investors when making investment recommendations.

Among other things, the bulletin aims to help firms and reps when, “considering reasonably available alternatives and cost, addressing conflicts of interest, and adopting and implementing reasonably designed policies and procedures when making account recommendations.”

Many retail investors rely on broker-dealers and investment advisers to help them choose the investments, strategies, and accounts to meet their goals, SEC chair Gary Gensler stated.

“It is important that investors can trust that the advice or recommendations they receive are designed to serve their best interests.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.