SEC Proposes Standard of Conduct for Broker-Dealers and Interpretation Regarding Standard of Conduct for Investment Advisers: SEC Approves Package of Proposed Rules and Interpretations Designed to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships With Investment Professionals

Sullivan & Cromwell LLP - May 10, 2018

On April 18, 2018, the Securities and Exchange Commission (“SEC”) voted 4 to 1 to approve a package of proposed rules and interpretations with the stated goal of improving “the quality and transparency of investors’ relationships with investment advisers and broker-dealers while preserving investor access to a variety of advice relationships and investment products.”

The approximately 1,000-page package comprises three separate proposals:

(1) a proposed rule under the Securities Exchange Act of 1934 (“Exchange Act”) establishing a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer;
(2) a proposed interpretation regarding the standard of conduct for investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”); and
(3) proposed new and amended rules under the Advisers Act and the Exchange Act that, among other things, require registered investment advisers and registered broker-dealers to provide a brief relationship summary to retail investors in a mandatory disclosure form that summarizes key aspects of the relationship between such firms and their clients.
The package of proposed rules and interpretations, which is extensive, will need to be reviewed and considered carefully by broker-dealers, investment advisers and investment professionals and their advisers. The SEC is seeking comment from the public on all aspects of nearly every feature in the three proposals and has included over 450 questions on more than 40 topics. Comments are due by August 7, 2018.