Brokers and investment advisers are governed by different SEC advice rules that should produce the same result for investors — a financial professional who acts in their best interests — an agency official said Thursday.
Brokers have been working under Regulation Best Interest, the broker standard of conduct that went into force in June 2020. As part of the Reg BI rulemaking package, the SEC also issued an interpretation of the Investment Advisers Act that requires investment advisers to be fiduciaries to their clients.
SEC Chair Gary Gensler has said the agency will try to ensure that Reg BI delivers "best interest" care for investors through examinations, guidance and enforcement. The agency also has released two staff bulletins that outline how brokers and investment advisers can comply with their respective standards when it comes to making account recommendations and addressing conflicts of interest.
There are distinctions between Reg BI and fiduciary duty, but they both lead to the same place for investor protection, an SEC official said.
“Although the specific application of Regulation Best Interest and the investment adviser fiduciary duty may differ in some respects and be triggered at different times, in the staff’s view, they generally yield similar results in terms of the ultimate responsibilities owed to retail investors,” Emily Russell, chief counsel in the SEC Division of Trading and Markets, said at the Practising Law Institute’s SEC Speaks conference in Washington. “Our hope is that these bulletins send a strong message that we take the ‘best interest’ obligation at the heart of both standards very seriously and we expect investment professionals and firms to do the same.”
Future Reg BI bulletins will focus on the costs of investment recommendations and an adviser’s obligation to assess reasonably available alternatives, Russell said.
In an earlier conference session, another SEC official said the agency has made compliance with Reg BI an examination priority.
“We would expect a number of exams that are related to this to be coming up in the next year,” said Thoreau Bartmann, assistant director of the SEC’s chief counsel’s office.
The SEC Speaks conference was held in person for the first time since the coronavirus pandemic hit in early 2020. Some SEC participants, such as Bartmann, appeared at the conference venue in downtown Washington. Others, such as Russell, spoke via video.
Gensler also addressed the PLI audience on a big screen, speaking from his home. In his remarks, he reiterated his push for SEC oversight of much of the cryptocurrency market. He asserted that most digital tokens are investment contracts and that crypto exchanges, brokers and attorneys in the digital coin industry should comply with securities rules.
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