Brokers need to carefully consider alternatives before recommending cryptocurrencies, asset-backed securities, and other high-risk and complex products.
If they work for a firm that also happens to be a registered investment advisor, they need to make sure they bill their clients in a manner that is in their interest.
Here are two important takeaways The SEC staff announcement began circulating on Thursday. The SEC, which regulates much of the wealth management industry, issued the announcement as the last of three guidance documents it plans to issue after adopting best interest regulation for the broker-dealer industry in June 2019.
this time, The SEC calls attention to what it calls a duty of care, has the responsibility to look out for the client’s best interest through a sound understanding of the client’s objectives.The first two announcements involved Account recommendationincluding 401(k) rollovers, and Avoid conflicts of interest.
The SEC’s overall goal is to clarify brokers’ obligations under best interest regulation, which is generally considered weaker than the fiduciary duty governing the conduct of financial advisors. But both standards require financial planners to focus on the best interests of their clients, eliminate conflicts of interest as much as possible, and disclose any unavoidable conflicts.
There is one big difference, SEC officials said Thursday. Regulation Best Interest, or Reg BI for short, is only applicable when brokers recommend investments for investors or help complete transactions. The Fiduciary Standard applies to the entire advisor-client relationship.
To date, the SEC has brought one enforcement case against Reg BI and the Financial Industry Regulatory Authority (the brokerage industry’s self-regulatory agency), Only a few were initiated. Regulators said they plan to take tougher action on Reg BI violations this year.
The latest staff announcement is further evidence of what advisors and brokerage firms need to do if they want to comply with the law, SEC officials said Thursday. Here are some tips from them: