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On June 5, 2019, the SEC voted to adopt a package of
rulemakings and interpretations regarding broker dealers’ and investment
advisers’ standards of conduct, including new Regulation Best Interest, new
Form CRS Relationship Summary, and two interpretations under the Investment
Advisers Act of 1940.
Under Regulation Best Interest, broker dealers will be
required to act in the best interest of a retail customer when making a
recommendation of any securities transaction or investment strategy involving
securities. This Regulation will augment
the broker dealer standard of conduct beyond existing suitability obligations
and prohibit a broker dealer from putting its financial interests ahead of the
interests of a retail customer when making recommendations.
The Form CRS Relationship Summary will require registered investment
advisers and broker dealers to deliver a relationship summary to retail
investors at the beginning of their relationship. Firms will summarize information covering services,
fees and costs, conflicts of interest, legal standard of conduct, and whether
or not the firm and its financial professionals have a disciplinary history.
The interpretations of the Advisers Act reaffirm and
clarify certain aspects of the investment adviser fiduciary duty as well as the
“solely incidental” exclusion to the Act covering broker dealer advice
regarding the value and characteristics of securities or as to the advisability
of transacting in securities if the advice is provided in connection with and
is reasonably related to the broker dealer’s primary business of effecting
securities transactions.