United States: SEC Adopts Regulation Best Interest And Related Rules And Interpretations

On June 5, 2019, the SEC adopted a package of rules and interpretations (the Adopted Rules) to clarify and further articulate the relationship between retail investors and their broker-dealers or investment advisers. Specifically, the Adopted Rules include (i) the new Regulation Best Interest, which requires broker-dealers to act in the best interest of a retail customer when making investment recommendations (i.e., recommendations relating to a securities transaction or investment strategy); (ii) the new Form CRS Relationship Summary, which explains to investors the types of services being offered by a broker-dealer or investment adviser (and alternate services that could be provided) and discloses the investment adviser's or broker-dealer's applicable fees, conflicts of interest and disciplinary history; (iii) guidance restating and clarifying the SEC's view on the fiduciary duty owed by investment advisers to clients under Section 206 of the Investment Advisers Act of 1940 (the Advisers Act) (the Investment Adviser Interpretation); and (iv) guidance clarifying the SEC view on the "solely incidental" prong of the broker-dealer exclusion under the Advisers Act (the Solely Incidental Interpretation). The SEC first proposed Regulation Best Interest in April 2018 against a backdrop of uncertainty regarding the Department of Labor's 2016 "Fiduciary Rule," which was vacated by the Fifth Circuit. The SEC voted 3-1 to approve the Adopted Rules, with Commissioner Robert Jackson, the sole Democratic commissioner, opposed. Rick Fleming, the SEC's Investor Advocate, was also critical of various aspects of the Adopted Rules, including Form CRS and aspects of the Investment Adviser and Solely Incidental Interpretations, although he recognized that the adoption was, overall, a step forward. Key components of the Adopted Rules are summarized below.

Regulation Best Interest

Under Regulation Best Interest, when making investment recommendations to retail clients, a broker-dealer must act in the retail client's "best interest" and cannot place its own interest ahead of such client's interests. This includes recommendations of account types such as rollovers or transfers of assets in workplace retirement plan accounts to IRAs as well as recommendations to take plan distributions, and it also covers implicit hold recommendations resulting from agreed-upon account monitoring. Regulation Best Interest includes the following key components:

  • Disclosure Obligation: Broker-dealers must disclose to the client the material facts relevant to the relationship and recommendations, including material conflicts of interest.
  • Care Obligation: Broker-dealers must exercise reasonable diligence, care and skill in making a recommendation or series of recommendations to a client, including that the client understands potential risks, rewards and costs associated with the recommendation.
  • Conflict of Interest Obligation: Broker-dealers must establish, maintain and enforce written policies and procedures reasonably designed to identify and at a minimum disclose or eliminate material conflicts of interest. Specifically, the policies and procedures must:
    • Mitigate conflicts that create an incentive for a firm's financial professional to place its interests or the interest of the firm ahead of the client's interest.
    • Prevent material limitations on offerings (e.g., a limited product menu or offering only proprietary products) from causing the firm or its financial professional to place its interest ahead of the client's interest.
    • Eliminate sales contests and quotas, bonuses and non-cash compensation that are based on the sale of specific securities or types of securities within a limited time period.
  • Compliance Obligation: Broker-dealers must establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole.

The compliance date for Regulation Best Interest is June 30, 2020.

Form CRS Relationship Summary

Form CRS requires broker-dealers and investment advisers to deliver a relationship summary to retail investors at the start of their relationship. The relationship summary will include information regarding (i) the types of client and customer relationships and services the firm offers; (ii) the fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services; (iii) whether the firm and its financial professionals currently have a reportable legal or disciplinary history; and (iv) how to obtain additional information about the firm. The compliance date for Form CRS is June 30, 2020.

Investment Adviser Interpretation

Under Section 206 of the Advisers Act, an investment adviser owes its client a fiduciary duty, which is comprised of a duty of care and a duty of loyalty. The Investment Adviser Interpretation reaffirms and clarifies certain aspects of such fiduciary duty, noting that the duty is broad and principles-based and applies to the entire adviser-client relationship. Among other items, the Investment Adviser Interpretation includes examples of the application of the fiduciary duty to institutional investors and clarifies the SEC's interpretation of what constitutes full and fair disclosure and informed consent. 

Solely Incidental Interpretation

The Advisers Act excludes from the definition of "investment adviser" any broker-dealer that provides advisory services when such services are "solely incidental" to the conduct of the broker-dealer's business and when such incidental advisory services are provided for no special compensation. The Solely Incidental Interpretation clarifies that a broker-dealer's advice as to the value and characteristics of securities or to the advisability of transacting in securities falls within the "solely incidental" exclusion if the advice is provided in connection with and is reasonably related to the broker-dealer's primary business of effecting securities transactions. 

For additional information on the Adopted Rules, please visit here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Cadwalader, Wickersham & Taft LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions