US SEC Proposes Regulation Best Interest for Retail Investors


US SEC Proposes Regulation Best Interest for retail investors, which aims to advance the quality of investors’ relationships with investment advisers and broker-dealers. The US SEC has also proposed an interpretation to reiterate and clarify the stance of the regulator in regards to the fiduciary duty that investment advisers owe to their clients.

19 April, AtoZ Markets The US Securities and Exchange Commission (SEC) has voted to propose a package of rules and interpretations that are created to advance the quality of investors’ relationships with investment advisers and broker-dealers. At the same time, these new proposed rules would preserve an access to a number of kinds of advice relationships and investment products.

US SEC Proposes Regulation Best Interest for Retail Investors

The official announcement from the US SEC reads:

“Under proposed Regulation Best Interest, a broker-dealer would be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest is designed to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making recommendations.”

Furthermore, the regulator’s proposed improvements to the standard of conduct for broker-dealers in Regulation Best Interest do not come alone. The US SEC has also proposed an interpretation to reiterate and clarify the stance of the regulator in regards to the fiduciary duty that investment advisers owe to their clients.

The watchdog has stressed principles that are relevant for the fiduciary duty. The officials believe that investment advisers and their clients can have a greater understanding of the legal obligations of advisers.

Client Relationship Summary

Also, the US SEC has suggested helping address investor confusion in relation to the nature of their relationships with investment professionals. The SEC proposed a new short-form disclosure document, or so-called “client relationship summary.”

The CRS would provide retail investors with easy-to-understand data in relation to the nature of their relationship with their advisers. The form also would serve as an addition to other more detailed disclosures. SEC Chairman Jay Clayton stated:

“The tireless work of the SEC staff has proven to me that we can increase investor protection and the quality of investment services by enhancing investor understanding and strengthening required standards of conduct.  Importantly, I believe we can achieve these objectives while simultaneously preserving investors’ access to a range of products and services at a reasonable cost.  The package of rules and guidance that the Commission proposed today is a significant step to achieving these objectives on behalf of our Main Street investors.”

Additionally, the US SEC has suggested to limit certain broker-dealers and their financial advisers from using “adviser” and “advisor” terms as part of their name. They will also need to disclose their registration status to the US SEC in some of the retail investor communications.

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