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What’s in a Name? Advisors, Brokers, and Regulation B-I

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Thursday, April 30, 2020.

On June 5, 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934, which requires broker-dealers and their representatives to act solely in the “best interest” of their retail clients when making investment recommendations.  Among other things, “Regulation Best Interest”—or “Reg BI”—imposes new conflict-of-interest rules and requires broker-dealers to establish, maintain, and enforce policies reasonably designed to identify, and fully and fairly disclose, any such conflicts to investors.  Firms and financial professionals must comply with the new rule by June 20, 2020.  No extension given for the global pandemic. 

Aside from the new “best interest” rules, there are many other mandates in the nearly 800-page rule, including specific new guidelines establishing what financial professionals may call themselves publicly.  To the average investor, the terms financial advisor, financial consultant, or stockbroker may mean essentially the same thing.  But, not to the SEC. Moving forward, financial professionals must disclose to their clients “all material facts relating to the scope and terms of the relationship,” including the capacity in which they are acting whether as a broker or an adviser.  Investment “advisers” must pass the Series 65 exam and register with the SEC or state securities regulator before rendering investment advice.  They traditionally have access to a wide variety of investment products and platforms, while “brokers” traditionally were limited to those investments offered by their firm.

Going forward, all financial professionals must be mindful of these and the other requirements of Regulation BI.  FINRA has already signaled its willingness to pursue disciplinary actions against financial professionals who mis-classify themselves as “financial advisors” instead of brokers. 

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Partner George C. Miller can be reached in the firm’s San Diego office at (619) 696-9500. 

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