The SEC Voting on Reg BI on June 5 — Three Months Ahead of Schedule!


In an uncharacteristic regulatory move, the SEC is voting three months earlier than previously announced on whether to adopt “Regulation Best Interest” (Reg BI), the agency’s three-prong rulemaking “package.”

  • The three-prong rulemaking package is an attempt to clarify the standard of care applicable to broker-dealers and registered representatives. With it, the SEC hopes to resolve investor confusion surrounding broker-dealer and rep obligations towards their customers.

In addition to Reg BI, the SEC will also vote on new and amended rules and forms that require registered investment advisers and registered broker-dealers to provide a customer relationship summary (Form CRS) to retail investors, and whether to publish an SEC “interpretation” of the standard of conduct for investment advisers.

Finally, in a new addition to the initially proposed regulatory package, the SEC will vote on whether to publish a Commission interpretation of the “solely incidental” language found in the Investment Advisers Act of 1940.

  • This language states that the term “investment adviser” and its related fiduciary status do not apply to any broker-dealer or rep who provides investment advisory services that are solely incidental to the conduct of his or her business as a B/D, and who receives no special compensation for these services.
  • This interpretation of “solely incidental” could be an important part of how the new rules impact broker-dealers and their reps.

Should all or part of Reg BI be adopted, all eyes will be focused on the compliance date. The Commission usually provides a number of months for firms to digest new rules, prepare new policies and procedures, and issue newly-required disclosure documents. Even so, if adopted the content of these new regs will greatly impact how most compliance departments will be spending the remainder of 2019.

Similarly, any new gloss on the meaning of “solely incidental” has the potential to either open up or further constrict the activities in which broker-dealers may engage without having to register as investment advisers. Either way, it looks like a busy summer and fall for compliance.