The Securities and Exchange Commission is hosting an open meeting June 5 where it will vote on its standards-of-conduct package proposal, according to a notice posted Thursday.
Last year, the SEC approved the package, which has become commonly known as Reg BI for one of the three legs of the proposal, which includes a best-interest standard that compels brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts. Currently, brokers are subject to a suitability standard that means they must provide advice that is merely suitable to their clients' situations. Critics say the proposal does not adequately define the term best interest and wouldn't establish a legally enforceable standard.
The client relationship summary, or Form CRS, requires firms to disclose to retail investors the nature and scope of their services, the types of fees customers would incur, the conflicts of interest faced by the firm and the firm's disciplinary history.
Moreover, a standard of conduct for investment advisers states advisers have a duty to act and provide advice that is in the best interest of the client.
During a comment period that ended in August, the SEC received more than 6,000 comments on the proposed package.
David G. Tittsworth, a lawyer at Ropes & Gray in Washington, referred to the Form CRS proposal in a statement as "the whipping boy for interest groups on both sides of the debate." Notably, brokers have strongly opposed the prohibition on using the terms "adviser" and "advisor," which the current proposal stipulates, though "it is clear that these terms have contributed to investor confusion about the differences between brokers and investment advisers," Mr. Tittsworth added.
The SEC also added a new part to the rule-making package — the Interpretation of "Solely Incidental" — which references a provision in the Investment Advisers Act of 1940. The provision exempts broker-dealers giving investment advice from registering under the Advisers Act if their advice is "solely incidental" to the conduct of their business as a broker-dealer and they don't receive "special compensation" for the advice.
In an email, Karen Barr, president and CEO of the Investment Advisers Association, said questions about "solely incidental" were embedded in the proposed releases and "the SEC may be confirming its prior position that discretionary investment advice is not 'solely incidental' to brokerage activities, among other possible elements of this item."
The IAA has asked the commission to "more appropriately define advice that is considered not to be solely incidental to brokerage activities," Ms. Barr added. "At a minimum, we urged the commission to confirm its prior position that discretionary investment advice is not solely incidental to brokerage services."
The commission is currently made up of three Republicans, including Chairman Jay Clayton, and one Democrat.
Whatever the SEC decides on June, 5, the Reg BI story will still be far from over, Mr. Tittsworth said. "These will be long and complicated releases that will require a good deal of work and analysis to digest and comprehend in order to determine appropriate courses of action."
