The Securities and Exchange Commission provided clarification on its updated Regulation Best Interest frequently asked questions on the use of the terms “adviser/advisor” in a name or title by a broker-dealer. The compliance date for Regulation Best Interest and Form CRS is June 30, 2020.
The SEC said that the use of “adviser” and “advisor” in a name or title by a broker-dealer that is not also registered as an investment adviser is a violation of the requirement to disclose the broker-dealer’s capacity under Regulation Best Interest’s disclosure obligation. However, the SEC did not expressly prohibit the use of these names and titles by broker-dealers.
The SEC said that broker-dealers may use these terms when they are acting in a role specifically defined by federal statute that does not entail providing investment advisory services to retail customers, for example, as a municipal advisor, commodity trading advisor, or advisor to a special entity.
A broker-dealer that provides advice in other capacities outside the context of investment advice to a retail customer may in its discretion use the terms “adviser” and “advisor.”
In most instances, however, the SEC said that when a broker-dealer uses these terms in its name or title in the context of providing investment advice to a retail customer without also being a registered investment adviser, it will be presumed to violate the Reg BI disclosure obligation.
As previously reported by The DI Wire, the SEC’s office of compliance inspections and examinations (OCIE) issued two risk alerts that provide broker-dealers and investment advisers with advance information about the expected scope and content relating to the initial examinations of Regulation Best Interest and Form CRS.
Regulation Best Interest and Form CRS are key components of a broader package of rules adopted by the SEC in June 2019.
Regulation BI establishes a “best interest” standard of conduct for brokers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, while Form CRS requires broker-dealers to provide a brief summary to retail investors on the scope of their relationship.