SEC’s Proposed Investment Advice Reform

On April 18, 2018, the Securities Exchange Commission (SEC) released its much anticipated “Investment Advice” proposal that could fundamentally change the way broker-dealers and their representatives do business.1 The intent is to enhance the quality and transparency of relationships (taxable and non-taxable) with investment advisers and broker-dealers while retaining access to a variety of advice relationships and investment products.

In recent years, the Department of Labor (DOL) published regulations setting a new standard for advice given specifically to retirement investors. The DOL called for a phased transition and implementation plan, with key milestones being completed in April 2017, but in March of this year, the US Court of Appeals ruled that the DOL had overstepped its statuary authority. The court issued a final mandate in June, ruling that the DOL Fiduciary will be forever vacated. Though the DOL Fiduciary regulation did not hold, the pull of the industry’s current remains strong towards safer harbors for investors. Now the pressure lies on the SEC to complete a well-crafted regulation that enhances investor protection across a broader range of asset classes.

The SEC’s three-part proposal package seeks to enhance disclosure for registered advisers, broker-dealers, and dually registered firms; and to disclose or mitigate conflicts of interest in an effort to move the industry to act in the best interest of investors.2 In order to enforce these new rules and interpretations, the SEC stipulates increased record filing, record-keeping and retention; and potentially an industry wide name change for broker-dealers.

Following the April release, the SEC opened itself to comments for a period of 90-days. Reactions to the three-part proposal were mixed overall.3 Despite the regulation’s perceived shortcomings, SIFMA supports “the creation of a heightened best interest standard for broker-dealers across all accounts” and encourages the SEC to “swiftly proceed to final rulemaking,” incorporating legal analysis and industry feedback.4 Feeling the recent sting of sunk costs from the DOL rule, industry participants will likely wait with bated breath for the SEC’s revisions before implementing its proposed changes.

GMG is closely monitoring the SEC’s developments. As the regulation evolves, GMG will publish further analysis on anticipated industry impacts of regulation best interest, the proposed name change, and form CRS.






Gartland & Mellina Group — A Management Consulting Company