On July 16, 2018, the Committee submitted a comment letter to the Securities and Exchange Commission (“SEC”) in response to the SEC’s request for comment on its Regulation Best Interest and Form CRS Relationship Summary proposals. These proposals are intended to enhance the standard of conduct for broker-dealers when making securities transaction or investment strategy recommendations to retail customers and require registered investment advisers and broker-dealers to provide a relationship summary to retail investors.
The Committee commended the SEC for submitting these proposals for public comment noting that it is an appropriate time to adopt a best interest standard that applies uniformly to all retail customer account types and that the SEC is the appropriate agency to lead such an effort. The Committee stated that it believes that the proposals should help reduce customer confusion about the duties owed to them by their broker-dealers and that Regulation Best Interest provides firms with the necessary flexibility in complying with its requirements.
However, the Committee expressed three concerns with the proposals. First, Regulation Best Interest contains standards that the SEC states will be evaluated based on the totality of the circumstances and will thus be subject to significant interpretation. The Committee stated that it agreed with a principles-based approach but emphasized that the SEC will need to work closely with the industry to provide feedback and guidance as the regulation is implemented. Second, the Committee stated that the Form CRS Relationship Summary is excessively complicated and should be shortened and simplified with supplemental disclosures made available online. Third, and very importantly, the Committee noted that any Department of Labor rules regulating broker-dealers under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code should be made consistent with the SEC’s regulation of broker-dealers and the proposals.
The letter is available here.