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PSCA Executive Reports

June 20, 2019

Regulation Best Interest

On Wednesday, June 5, the SEC voted 3-1 in favor of adopting “Regulation Best Interest,” a new rule to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer when making a recommendation to a retail customer of any securities transaction or investment strategy involving securities.

The SEC also adopted other guidelines during its meeting. The “Form CRS Relationship Summary” consists of new and amended rules and forms to require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors.

Two interpretations from the Division of Investment Management were also approved, one regarding the standard of conduct for investment advisers and the other regarding the solely incidental prong of section 202(a)(11)(C) of the Investment Advisers Act of 1940.

By June 30, 2020, registered broker-dealers must begin complying with Regulation Best Interest and broker-dealers and investment advisers registered with the SEC will be required to prepare, deliver to retail investors, and file a relationship summary.

Not everyone is pleased with the final rule. Consumer advocates derided it as ineffectual, and Senate Health, Education, Labor and Pensions (“HELP”) Committee Ranking Member Patty Murray (D-WA) called the measure “flimsy” and “disappointingly weak.” We understand that at least one consumer group is considering a legal challenge.

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