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)

For those eager to learn what direction the SEC will take during the Trump administration, some clues surfaced during the recent nomination hearing of Jay Clayton, President Trump’s pick to head the SEC.  Clayton commented on several important issues confronting the SEC.
Continue Reading SEC Chairman Nominee Jay Clayton Provides Insight on the Future of the SEC (Part 1)

I have spoken for years about the importance of contingency planning for money market funds. So I understand why business continuity and transition planning is a great idea for investment advisers. I’m troubled, however, by the SEC’s recent proposal to require advisers to maintain such plans. My troubles lie more with their means than with their ends.
Continue Reading Should Failure to Plan Constitute Fraud?

A recent Majority Staff Report from the Senate Committee on Homeland Security and Governmental Affairs raises some concerns. Some of my concerns relate to the state of our federal government. (Should congressional staff spend time composing philippics against an executive department? Does the prospect of exposure of inter-agency emails have a chilling effect on communications? Why has the Senate conjoined homeland security with governmental affairs?) More significantly, an email exchange cited in the report challenges my understanding of fiduciary law.
Continue Reading Will the Department of Labor (DOL) Add to the Fiduciary Murk?

In an earlier post, I criticized the case of Lash v. Cheshire Count Savings for holding that a bank could be a fiduciary to its borrowers. One problem with the decision is a failure to cite, with one exception, any precedents that could not be distinguished from the facts of the case. The one exception, First Nat’l Bank in Lenox v. Brown, presents a more difficult challenge to my efforts to exclude debtor/creditor relationships from fiduciary status.
Continue Reading Maybe a Lender Could be a Fiduciary