Brokers must adhere to a higher investment-advice standard that will be implemented later this year even when they’re selling private offerings to wealthy individuals deemed sophisticated investors, the Securities and Exchange Commission said this week.
In an updated list of frequently asked questions about Regulation Best Interest, the SEC said the rule applies to so-called accredited investors, who are allowed to buy unregistered securities because they meet certain income and wealth thresholds.
Brokers must comply with Reg BI “if that accredited investor is a ‘retail customer’ as defined in the rule,” the SEC FAQs state. “The definition of ‘retail customer’ does not exclude high-net worth natural persons and natural persons that are accredited investors. Whether a broker-dealer engages in limited activity does not dictate whether or not Regulation Best Interest applies.”
The question on accredited investors was one of eight new questions added Tuesday to a list of frequently asked questions about Reg BI that now totals 21. The FAQs about the customer relationship summary, known as Form CRS, also were updated.
Brokers might be surprised at the SEC’s answer because accredited investors are assumed to be able to fend for themselves when it comes to investment decisions.
“It might raise some eyebrows,” said Todd Cipperman, principal at Cipperman Compliance Services.
Most of the FAQs about Reg BI are answered with language that is taken straight out of the text of the final rule. But the answer on accredited investors is fresh, according to Kurt Wolfe, a compliance attorney at Troutman Sanders.
“It’s probably in response to specific questions from brokers-dealers in markets catering to high-net-worth individuals,” Mr. Wolfe said. “It’s a fair question.”
The query comes at a time when the SEC is trying to let more ordinary investors buy often risky private placements. The agency recently proposed a rule to loosen the definition of accredited investor to include people with special skills and expertise.
“The whole way the SEC is thinking about these high-net-worth or super-sophisticated investors seems to be changing,” Mr. Wolfe said.
The agency appears to be emphasizing that as the number of people deemed accredited increases, they still deserve the protection of Reg BI.
The SEC is likely to continue to make other clarifications in future iterations of FAQs about the rule, which must be implemented by June 30.
“They’re going to give the custody rule a run for its money in terms of FAQs,” Mr. Cipperman said. “Best interest is this sort of creation of regulatory compromise. It doesn’t have a common law background to it. Therefore, the commission staff has to define what the standard means.”
Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.
The Harford, Connecticut-based RIA is expanding into a new market in the mid-Atlantic region while crossing another billion-dollar milestone.
The Wall Street giant's global wealth head says affluent clients are shifting away from America amid growing fallout from President Donald Trump's hardline politics.
Chief economists, advisors, and chief investment officers share their reactions to the June US employment report.
"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
