SEC Staff Bulletin Provides Detailed Guidance for Broker-Dealers and Investment Advisers on the Care Obligations to Retail Investors

3 May 2023
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Key takeaways:

The SEC’s updated staff bulletin (the “Bulletin”) regarding the standards of conduct for broker-dealers and registered investment advisers underscores the Commission’s continued commitment to retail investor protection. The Bulletin provides additional guidance to put registrants on further notice of the duty of care with respect to retail investors, and likely foreshadows increased Reg BI examination and enforcement activity.

  • Firms should evaluate their policies and procedures to ensure compliance with the specific recommendations in the Bulletin involving (for example) investment profiles; the consideration of investment alternatives; documentation; and complex and risky products (which the Bulletin defines in specificity with several examples). The particularized guidance for policies and procedures may signal that EXAMS may move from verifying the existence of broadly relevant policies and procedures to probing firms’ policies and procedures more substantively than in the past. Such increased scrutiny would be consistent with the identification of Reg BI and the fiduciary duty of investment advisers as priority areas in the 2023 EXAMS Priorities.
  • The Bulletin arguably also creates increased scrutiny for recommendations or advice involving complex or risky products. Firms and financial professionals may have challenges in meeting this seemingly heightened standard for certain types of investors, underscoring the importance of documentation in this area.
  • The Bulletin’s focus on cost is consistent with the Commission’s prior initiatives such as the Share Class Selection Disclosure Initiative and enforcement matters related to revenue sharing, and suggests that Examinations and Enforcement will continue to scrutinize investment costs borne by retail investors.