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Broker-Dealer and Investment Adviser Account Recommendations


This article was originally published in “The Review of Securities & Commodities Regulation,” Vol. 55 No. 13, July 20, 2022.

Nearly 18 months into his tenure, Securities and Exchange Commission Chair Gary Gensler’s agenda with respect to the standards of conduct for broker-dealers and investment advisers seems to be coming into focus. At the start of his tenure, there were questions about whether Chair Gensler would revisit Regulation Best Interest (“Reg BI”) under the Securities Exchange Act of 1934 and the SEC’s 2019 interpretation of an investment adviser’s fiduciary duty (“IA Interpretation”) under Section 206(1) and (2) of the Investment Advisers Act of 1940. Rather than revisiting them, Chair Gensler has asked the SEC’s Divisions of Investment Management, Trading and Markets, Examinations, and Enforcement to help ensure that investment professionals live up to their obligations under Reg BI and the Advisers Act fiduciary duty.

Perhaps the most significant action by the SEC Staff in response to Chair Gensler’s request to date was a March 2022 Staff bulletin titled “Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors” (“Staff Bulletin”). The Staff Bulletin is a series of questions and answers that, according to the Staff, purport to “reiterat[e] the standards of conduct for broker-dealers and investment advisers when they are making account recommendations to retail investors.” As discussed below, however, the Staff Bulletin goes beyond the SEC’s guidance in the Reg BI Adopting Release and the IA Interpretation. While firms might consider the Staff Bulletin as a frame of reference when considering their obligations in making account recommendations, as the Staff notes, the Staff Bulletin “represents the views of the staff”; “is not a rule, regulation, or statement of,” and has not been approved or disapproved by, the Commission; and “like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.”

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