Page 44 - Investment Advisor September 2022

obligation to act in the retail investor’s
best interest.”

‘CONFLATION’ OF REG BI AND
FIDUCIARY STANDARD?
The guidance “seems designed to point
out the similarities between Reg BI
and the fiduciary standard rather than
to point out the differences,” Nicolas
Morgan, a partner at Paul Hastings, said
in another email.
“The fact that the guidance is com-
ing out for both Reg BI and the fidu-
ciary standard for investment advisers
in one bulletin for both is indicative of
the continuing conflation of these two
standards that we have been seeing
for the past few years,” Lundy added.
“We are still not at a universal fiduciary
standard, but it would not be a surprise
for the Division of Examinations and
the Division of Enforcement under this
regime to continue to push these stan- “[The guidance] is consistent with what
dards closer to alignment.” Chair Gensler has promised, to provide
While the guidance addresses conflicts
under Reg BI and the fiduciary stan- additional clarity about what Reg BI and
dard, Hauptman adds: “They still differ in the Advisers Act fiduciary duty require
scope and application. But both standards
stem from key fiduciary principles.” and to make the most out of them.”
The guidance fails to address, how-
ever, “what aspects of conflict mitiga- —Micah Hauptman
tion required for IAs under the fiduciary
standard are not required for BDs under address conflicts need to be tailored to gation, firms may need to determine
Reg BI,” Morgan maintains. “In other a firm’s particular business model. The whether to eliminate the conflict or
words, for investors who want a low- guidance also provides steps firms can refrain from providing advice or recom-
cost option and are not concerned about take to “identify” conflicts. mendations that are influenced by that
conflict issues, does Reg BI permit conflict to avoid violating the obligation
investors and BDs to agree to a ‘pure DISCLOSURE IS NOT ENOUGH to act in a retail investor’s best interest
brokerage’ model under which the bro- Have firms that have identified all of in light of the investor’s objectives.”
ker has minimal obligations to mitigate their conflicts of interest and disclosed Even if conflicts are sufficiently
potential conflict risks?” them to retail investors satisfied their addressed, the guidance continues,
obligations under Reg BI and the IA “under both Reg BI and the IA fidu-
KEY TAKEAWAYS fiduciary standard? No, according to ciary standard, firms and their financial
The guidance points out that there are the guidance. professionals can provide recommenda-
no conflict-free business models. While It states: “Disclosure of conflicts alone tions or advice only when they have a
all firms have some conflicts, the nature does not satisfy the obligation to act in a reasonable basis to believe that the rec-
and extent can vary greatly from firm retail investor’s best interest. Further, ommendation or advice is in the retail
to firm based on business model or … certain conflicts should (and in some investor’s best interest.”
product mix. cases, must) be addressed through mit- Al Drago/Bloomberg
Addressing conflicts is also not a igation. Where such conflicts cannot Washington Bureau Chief Melanie Waddell can
set-it-and-forget-it task. The steps to be effectively addressed through miti- be reached at [email protected].

40 INVESTMENT ADVISOR SEPTEMBER 2022 | ThinkAdvisor.com