The U.S. Securities and Exchange Commission (SEC) stated that it will not delay the June 30, 2020, compliance deadline for Regulation Best Interest (Reg BI) and Form CRS. (See McGuireWoods’ April 9 and April 6 alerts.) The SEC continues to issue guidance on Reg BI compliance in advance of the compliance deadline.
One issue that was in need of further guidance was under what circumstances broker-dealers could use “adviser” or “advisor” in their names. While the Reg BI Adopting Release noted that the SEC would presume the use of “adviser” or “advisor” by non-dual registrant broker-dealers to be a violation of the capacity disclosure requirement under the Disclosure Obligation under Reg BI, there was continuing confusion in the industry regarding the SEC’s stance.
The Staff of the SEC Division of Trading and Markets added four new Reg BI FAQs to provide additional detail on the SEC’s views regarding the use of “advisor” or “adviser” in the names of broker-dealers.
- The use of “advisor” or “adviser” in the name of a non-dual registrant broker-dealer or its associated persons would “be presumed to violate” the Disclosure Obligation under Reg BI absent special circumstances. The SEC stated that when acting in a role “specifically defined by federal statute that does not entail providing investment advisory services to retail customers,” such as when the broker-dealer is acting as a commodity trading advisor, municipal advisor or advisor to a special entity, use of the term would not be a violation.
- An associated person of a dual registrant, who is only a supervised person of the broker-dealer and not the investment adviser, may not use the term “adviser” or “advisor” with his or her name or title. As stated in the SEC Reg BI Adopting Release, however, the associated person “may continue to use either the dual-registrant’s materials or may use the firm’s name in the financial professional’s communications even if the firm’s name includes the title ‘adviser’ or ‘advisor’ because such firm is dually registered as an investment adviser and broker-dealer….”
- As stated in the SEC Reg BI Adopting Release, however, the associated person “may continue to use either the dual-registrant’s materials or may use the firm’s name in the financial professional’s communications even if the firm’s name includes the title ‘adviser’ or ‘advisor’ because such firm is dually registered as an investment adviser and broker-dealer….”
- The fact that a broker-dealer has an affiliated registered investment adviser does not remove the presumption of a violation of the Disclosure Obligation if it used “adviser” or “advisor,” if it is not a registered investment adviser itself.
- Broker-dealers that are state-registered investment advisers may use “advisor” or “adviser” titles.
The SEC very likely will continue its efforts to provide guidance as market participants work toward the June 30, 2020, compliance deadlines. McGuireWoods is happy to discuss and advise on any questions with respect to the FAQs or Reg BI and Form CRS compliance efforts.