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Changes to SEC exam priorities mean investment advisers that advise retail investors must review their policies, procedures and training to make sure the best interests of retail investors are being addressed when making recommendations or providing investment advice.
On June 15, Chairman Jay Clayton of the SEC made a public statement covering several topics related to Regulation Best Interest (Reg BI) and Form CRS. Chairman Clayton confirmed that the compliance date for Reg BI and Form CRS will be June 30, 2020 and highlighted the SEC’s focus on issues related to retail investors, including the creation of a new investor-focused resource to assist such investors with reviewing the Form CRS and researching firms and financial professionals.
While the resource page is meant to inform and educate the investor community, it makes sense for compliance departments to review the site as well in an exercise to understand what the SEC’s expectations are in this brand new area – especially given the recent communications by the SEC that compliance with both Reg BI and Form CRS will be a priority going forward during examinations of firm’s that service retail investors.
The SEC resource page can be found here.
Practical Impact on Broker-Dealers and Investment Advisers
In addition, and noting the ongoing effects of the COVID-19 pandemic and various related actions, Chairman Clayton emphasized that under Reg BI and the Investment Advisers Act of 1940, as amended, broker-dealers and investment advisers should review their operations to ensure the best interests of retail investors are being addressed when making recommendations or providing investment advice to such investors.
More specifically, Chairman Clayton noted that firms should focus on recommendations and advice related to the following:
- Rollovers and withdrawals from 401(k) and other plans;
- Complex or risky products (including significantly leveraged products that rely on derivatives strategies to enhance returns, or those that focus on investments in less liquid and more volatile markets);
- COVID-related investments; and
- Special purpose acquisition companies and other structured investment vehicles.
Given the itemized list above, it makes prudent sense for both broker-dealers and investment advisers that advise retail investors regarding these products to review their policies, procedures and training that provide the foundation of controls for these products. And remember, under Reg BI a retail investor is defined as any natural person, with the one exception that natural person investors in private funds are not included within the scope of the definition.
How Bovill Can Help
- Review of Form CRS
- Review of the relevant policies and procedures
- Coordination of training for both access persons and registered representatives
