On April 14, 2020, the staff of the SEC’s Division of Investment Management (the “Division”) published a Statement on the Importance of Delivering Timely and Material Information to Investment Company Investors (the “Statement”). The Statement gives notice that the Division has a keen eye on prospectus risk disclosure as it continues to monitor the ongoing impacts of the COVID‑19 pandemic on investment companies. “In light of the current uncertainties and market disruptions,” the Division explains, “investors need high-quality financial information more than ever.”

The Statement comes amid other guidance and temporary regulatory relief from the SEC, including public statements by Chairman Jay Clayton and Chief Accountant Sagar Teotia emphasizing the need to assist “Main Street investors” in navigating turbulent markets. Uniquely, the Statement focuses explicitly on how fund complexes might modify existing disclosures.
Continue Reading SEC Staff Speaks to COVID-19 and Fund Prospectus Disclosure

On April 7, 2020, the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) published two risk alerts intended to provide market participants with advance information regarding (1) upcoming inspections for broker-dealer compliance with Regulation Best Interest (“Regulation BI”) and (2) upcoming inspections for broker-dealer and investment adviser compliance with Form CRS. The compliance date for both Regulation BI and Form CRS is June 30, 2020.

You can find more details in our client alert.
Continue Reading SEC Staff Publishes Risk Alerts Regarding Reg BI and Form CRS Inspections and Possible COVID-19 Impact

On June 5, 2019, the U.S. Securities and Exchange Commission (“SEC”) adopted a package of rules and interpretations relating to the standards of conduct for broker-dealers and investment advisers, including a new “best interest” rule for broker-dealers. The package was adopted by a 3-1 vote, with Commissioner Robert J. Jackson Jr. as the lone dissenter. Chairman Jay Clayton, who supported the package, stated that the SEC was not adopting a uniform fiduciary rule for broker-dealers and investment advisers. Instead, Chairman Clayton explained that “Regulation Best Interest incorporates fiduciary principles, but is appropriately tailored to the broker-dealer relationship model and will preserve retail investor access and choice.” Chairman Clayton, as well as the SEC’s press release, emphasized that Regulation Best Interest cannot be satisfied by disclosure alone, but rather through compliance with each of the rule’s four substantive obligations.

The actions taken on June 5 include the following:


Continue Reading SEC Adopts Package of Reforms Aimed at Raising the Standard of Conduct for Brokers and Clarifying an Investment Adviser’s Fiduciary Duty

At lunch with my broker the other day (my tab naturally), I asked the waiter for a hamburger and soda, but my broker interjected and told him to bring me a kale salad, no dressing, and a carrot and beet smoothie. “I’m supposed to look after your best interest,” my broker said, “and you’re clearly a bit overweight. By the way, I have scheduled an hour with your personal trainer after lunch.” I couldn’t deny it; this was all in my “best interest.”
Continue Reading Best Interest or Disinterest—How Should We Label the Duties of an Investment Adviser?

Welcome back for Part 4, the final installment in our discussion of the SEC’s April 18, 2018 fiduciary rulemaking proposal (the “Proposal”). We will summarize the SEC’s proposed Regulation Best Interest (“Regulation BI”), which seeks to create a “best interest” fiduciary duty standard for broker‑dealer relationships with retail customers. We will then delve into some of the specific requirements and open questions surrounding the regulation.

Continue Reading The SEC’s Fiduciary Rule Proposal — Implications for Investment Advisers (Part 4)

Welcome back for Part 3 of our discussion of the SEC’s April 18, 2018, fiduciary rulemaking proposal (the “Proposal”). Here, we dive into the SEC’s proposed Form CRS Relationship Summary and its proposed amendments to Form ADV. We also discuss the proposed rulemaking to restrict broker‑dealers’ use of the term “adviser” and variations thereof.

Continue Reading The SEC’s Fiduciary Rule Proposal — Implications for Investment Advisers (Part 3)

This post continues our discussion of the SEC’s April 18, 2018, fiduciary rulemaking proposal (the “Proposal”). Here we address the Proposed Interpretation Regarding Standard of Conduct for Investment Advisers and Request for Comment on Enhancing Investment Adviser Regulation portion of the Proposal which would, in sum, (i) restate advisers’ fiduciary duties under the Advisers Act and (ii) impose a variety of new requirements on advisers similar to those applicable to broker-dealers.

Continue Reading The SEC’s Fiduciary Rule Proposal — Implications for Investment Advisers (Part 2)

On April 18, 2018, the SEC held an open meeting where it approved the long‑awaited and much-discussed fiduciary rulemaking proposal package. The proposal primarily recommends disclosure- and principles and procedures-based rules, and has garnered three main criticisms: (1) it would establish a “best interest” standard without defining the term; (2) while intending to provide clarity, it would likely generate litigation around the scope of the restated investment adviser fiduciary duty; and (3) it fails to cover how a new “relationship summary” disclosure would function in the robo-adviser context. Part one of this series provides a high‑level overview of the recent history behind the proposal and summarizes its key provisions. Forthcoming posts will discuss the proposal in greater detail and suggest key takeaways for investment advisers.
Continue Reading The SEC’s Fiduciary Rule Proposal – Implications for Investment Advisers (Part 1)