Page 43 - Investment Advisor September 2022

THE PLAYING FIELD

By Melanie Waddell

New SEC Guidance Tackles How to

Address Conflicts of Interest

In addressing conflicts under Reg BI and the Advisers Act fiduciary

standard, disclosure isn’t enough, the SEC warns.

N ew guidance from the model and compliance and supervision

programs as they best see fit to do so.”
Securities
and
Exchange
Commission warns firms that
The FAQ, Lundy added, “may be
identifying and addressing conflicts viewed as helpful in that it provides
under Regulation Best Interest and the much greater detail and guidance for the
Advisers Act fiduciary standard “should ‘how’ aspect of getting into and maintain-
not be merely a ‘check-the-box’ exercise, ing compliance with these standards.”
but a robust, ongoing process that is tai- Micah Hauptman, director of investor
lored to each conflict.” protection for the Consumer Federation
In its new guidance, released on Aug. of America, agreed in another email
3 in Q&A form, SEC staff notes that it’s that the guidance “will be helpful to
“important that firms and their finan- firms and financial professionals as they
cial professionals review their business consider how best to address different
models and relationships with investors conflicts in their business models.”
to address conflicts of interest specific The guidance, Hauptman said, “is
This is one of the first to them.” Industry sources I contacted consistent with what Chair Gensler has
substantive pieces see the bulletin as helping brokers and promised, to provide additional clar-
advisors figure out “how” to identify and
ity about what Reg BI and the Advisers
of guidance on Reg address conflicts. Act fiduciary duty require and to make
BI for the brokerage This is the second set of Reg BI-related the most out of them. We welcome it.”
industry and the guidance issued by the Commission. The bulletin “makes clear that firms
should not approach conflicts of inter-
The first was released in March and
fiduciary standard for addressed account recommendations — est as a ‘box-checking’ exercise and that
investment advisers such as rollovers. The agency expects to how firms address various conflicts will
release further guidance on broker and
depend on the nature and extent of
[under SEC Chairman advisor care obligations, which would those conflicts,” he added.
Gary Gensler]. include consideration of reasonably Further, he continued, “it makes
available alternatives as well as costs clear that there are some conflicts that
—Jim Lundy and risks. are of a nature and extent that firms
“This is one of the first substantive would be unable to address in a way
pieces of guidance on Reg BI for the that would allow the firm or its finan-
brokerage industry and the fiduciary cial professionals to provide advice or
standard for investment advisers” under recommendations that are in the retail
SEC Chairman Gary Gensler, Jim Lundy, investor’s best interest. In those cases,
a partner and member of the Securities firms would need to take much more
Enforcement & Litigation Practice at aggressive action in addressing those
Foley & Lardner LLP, said in an email. conflicts, including eliminating them or
“As such, brokerage and investment refraining from providing advice or rec-
advisory firms should give this a close ommendations that could be influenced
study and apply it to their business by the conflicts to avoid violating the

SEPTEMBER 2022 INVESTMENT ADVISOR 39