SEC Adopts New Broker-Dealer Standard of Conduct

After much debate, the Securities and Exchange Commission (“SEC”) recently adopted Regulation Best Interest (“Reg BI”) in an effort to improve investor protection. Reg BI establishes a “best interest” standard of conduct for broker-dealers and associated investment professionals when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities.  Reg BI draws from key principles underlying fiduciary obligations, thus entitling a retail investor to receive investment recommendations that are in the customer’s best interest and that do not place the interests of the firm or the financial advisor ahead of the interests of the retail investor.

Reg BI enhances the broker-dealer standard of conduct beyond existing suitability obligations and aligns the standard of conduct with retail customers’ reasonable expectations by requiring brokerage firms to act in the best interest of the customer at the time the recommendation is made, without placing the financial or other interest of the firm ahead of the interest of the retail customer. Reg BI further requires brokerage firms to address conflicts of interest by establishing, maintaining and enforcing policies and procedures reasonably designed to identify and fully and fairly disclose material facts about conflicts of interest, and in some instances, to even eliminate the conflict.  Brokerage firms must comply with Reg BI by June 30, 2020.

Gregory B. Simon Law, LLC is a national securities law firm that provides legal services to investors and financial advisors on a wide range of financial industry matters. For more information on the firm, please visit https://www.gregsimonlaw.com.

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