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IAA Submits Comment Letter on SEC’s Standards of Conduct Rulemaking Package

August 6, 2018

IAA Vice President, Communications & Marketing Herb Perone.


Washington, DC (August 6, 2018) – The Investment Adviser Association – the largest organization exclusively representing the interests of federally registered investment advisers – today submitted a comment letter to the SEC regarding its rulemaking package on standards of conduct for broker-dealers and investment advisers. While the IAA expressed support for the goals of the rulemaking, it raised a number of specific concerns about the proposals.

“This rulemaking package could become a landmark in financial services regulation,” said IAA President & CEO Karen Barr. “Enhancing the standard of conduct for brokers giving investment advice has been a topic of discussion and debate at the Commission for more than 20 years. The IAA has long supported extending fiduciary principles to all financial professionals providing investment advice to retail investors. We commend SEC Chairman Jay Clayton and the Commission for making this issue a top priority.

“To the extent these rules clear up investor confusion over the differences among financial professionals and require brokers to act in the best interests of their customers, not letting their conflicts taint their advice, they will greatly benefit retail investors,” Barr said. “But we have real concerns about whether these rule proposals as written will achieve their intended goals, or whether they will actually increase investor confusion.”

Among the concerns raised in the IAA’s comment letter:

Proposed Regulation Best Interest (Reg BI)

  • The IAA is concerned about potential gaps in retail investor protection arising from the narrow scope and application of Reg BI (e., the rule would only apply only in the limited context of, and at the time of, a specific investment recommendation). All advisory activities that broker-dealers agree to provide a retail client, including ongoing monitoring for purposes of recommending changes in investments, should be covered by either Reg BI or the fiduciary standard.
  • The Commission should more appropriately define advice that is considered not to be “solely incidental” to brokerage activities. At a minimum, the Commission should confirm its prior position that discretionary investment advice is not “solely incidental” to brokerage services.

Proposed Form CRS

  • While the IAA agrees with the Commission’s goal of helping investors understand the type of financial professional they are dealing with and what they should expect from that relationship, we believe that as proposed, Form CRS may exacerbate the investor confusion it is intended to address.
  • Investor testing of proposed Form CRS – along with alternative approaches – is critical to developing disclosure that is demonstrably effective. We urge the Commission to publish the results of its investor testing in a way that facilitates further comment by both investors and financial professionals.
  • The Commission should provide the educational comparison between investment advisers and brokers – and other financial professionals – on its website, rather than requiring firms to include disclosures about other firms’ services. Certain proposed language in the relationship summary may increase investor confusion, could be misleading, and may not reflect the likely relationship an investor may have with a specific firm.
  • Form CRS should be streamlined to focus on the most critical aspects of the relationships and services being offered by each firm to investors. The summary should eliminate technical language and industry jargon to the extent possible and work in tandem with other disclosures to ensure that investors fully understand material conflicts of interest.

Proposed Restrictions on the Use of Certain Names and Titles and Required Disclosures

  • The Commission’s proposed restrictions on the use by certain broker-dealers of the titles “adviser” or “advisor” are a step in the right direction to reduce investor confusion, but will have limited impact by themselves. The Commission should address misleading marketing practices that leave investors confused as to the services they are receiving and whether they are in a relationship of trust and confidence.
  • Absent a robust standard of conduct designed to protect investors, the Commission should revisit the “solely incidental” exclusion for broker-dealers from the Investment Advisers Act.

Proposed Advisers Act Interpretation

  • While the IAA appreciates the Commission’s efforts to “reaffirm – and in some cases clarify” certain aspects of the Investment Advisers Act fiduciary duty, we do not believe it is necessary or beneficial to codify the fiduciary duty in a rule. This well-established, principles-based duty has successfully served as the bedrock principle of investor protection of clients of investment advisers for more than 75 years.
  • Certain aspects of the Commission’s duty of care discussion are retail-focused. The IAA recommends a more principles-based approach, so that the duty of care can be tailored based on different client types (e.g., retail versus institutional).
  • The IAA requests clarification on a number of specific issues related to the proposed Advisers Act Interpretation, including the Commission’s statements relating to disclosure and informed consent.

The IAA’s full comment letter is available online.

The IAA’s earlier letter responding to the SEC’s request for comment on “enhancing investment adviser regulation,” and an accompanying news release, are also available online.


About the Investment Adviser Association

The Investment Adviser Association (IAA) is the leading trade association representing the interests of SEC-registered investment adviser firms. The IAA’s more than 640 member firms collectively manage assets in excess of $20 trillion for a wide variety of institutional and individual investors. For more information, visit or follow us on LinkedIn, Twitter and YouTube.

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