Investment recommendations US SEC issues new guidance for brokers, advisors

WASHINGTON: The US Securities and Exchange Commission (SEC) on Wednesday issued new guidance to broker dealers and investment advisors on how to satisfy their obligations to retail investors and comply with agency rules when recommending investment products.

The guidance clarifies brokers’ and advisors’ obligations under the SEC’s long-standing Investment Advisor Fiduciary Standard and its Regulation Best Interest rule, passed in 2019.

A key focus is how much brokers and advisors should disclose in cases where they may have conflicts of interest. Investment firms often offer brokerage accounts and advisory accounts, but the rules governing these two types of accounts differ. Advisers must place clients’ interests ahead of their own, while brokers must only believe that recommendations are suitable for clients.

The SEC wants to ensure advisors and brokers consider alternatives and cost, address conflicts of interest, and implement policies and procedures for making recommendations.

“Firms may have a significant conflict of interest if the account type that is most profitable for them, for example, is not the type of account that is the best fit (for a) particular investor,” an SEC official said.

The Republican-led SEC finalized Reg BI in 2019 in what was widely seen as a win for Wall Street after its 10-year battle over regulation of the investment advice industry. It fought off a more onerous proposal by the Department of Labor.

Consumer groups criticized Reg BI for being too vague in its definition of “best interest” while not addressing all conflicts, including the higher payments that brokers receive for selling products that are more expensive to trade.

Wednesday’s measure under the now Democrat-led SEC, seeks to plug some of these gaps, analysts said.