United States: Cadwalader Attorneys Analyze SEC's "Retail Best Interest" And Fiduciary Guidance Proposals
Last Updated: April 30 2018
Article by Mr Cadwalader, Wickersham & Taft LLP

Cadwalader attorneys authored a memorandum on the implications of the recently proposed SEC releases (collectively, the "proposal") that are intended to expand and clarify the duties that broker-dealers and investment advisers owe to their clients. The releases were approved by a 4-1 vote, with Commissioner Kara M. Stein dissenting and several other commissioners expressing material reservations.

The proposal included three releases:

  • The "Best Interest Release," which would require a broker-dealer making a recommendation to a retail investor to act in the best interest of that investor. This release imposes increased obligations with regard to suitability, disclosures, conflicts of interest and compliance procedures.
  • The "Fiduciary Guidance Release," which is intended to explain the "federal fiduciary" obligations to which investment advisers are subject under the Advisers Act.
  • The "CRS Release," which would require broker-dealers and investment advisers to provide a short-form "Client Relationship Summary" to retail clients.

The attorneys asserted that the adoption of the proposal would significantly impact the manner in which financial services are provided to retail investors. The attorneys observed that the proposal raises several fundamental policy questions, most importantly to what extent can retail investors be trusted to make their own decisions on the basis of disclosure. The Commissioners' implicit or explicit disagreements as to these policy questions were reflected in their public statements.

The memorandum was authored by Steven Lofchie, Dorothy Mehta, Ellen Holloman, Matthew Lefkowitz, Nihal Patel, James Frazier, Mark Highman, and Conor Almquist.

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