The SEC has clarified that under Regulation Best Interest it will not tolerate broker-dealers calling themselves “advisors” unless they’re registered as investment advisors, except in certain cases.
In an update to its FAQ for Reg BI, the SEC says that broker-dealers who use the terms “adviser” or “advisor” in their titles or their firms’ names without being registered as investment advisors will be in violation of the rule’s disclosure obligation. Reg Bi's compliance deadline remains June 30 despite the Covid-19 pandemic.
Previously, the SEC didn’t “expressly prohibit” broker-dealers to use the terms even though doing so “creates a presumption of a violation of the Disclosure Obligation,” the regulator says.
Under the new rule, however, broker-dealers may use the terms when performing “a role specifically defined by federal statute that does not entail providing investment advisory services to retail customers, for example, as a municipal advisor, commodity trading advisor, or advisor to a special entity,” the SEC says.
“A broker-dealer that provides advice in other capacities outside the context of investment advice to a retail customer may in its discretion use the terms ‘adviser’ and ‘advisor,’” the regulator adds.
Similarly, associated persons of a broker-dealer generally can’t use the terms unless they’re associated persons of an investment advisor as well, according to the FAQ.
In addition, even broker-dealers with an affiliated registered investment advisor can’t use the terms unless the broker-dealer is also registered as an investment advisor, the SEC says.
Broker-dealers who are state-registered investment advisors, meanwhile, will be able to use the terms, according to the FAQ.
The update was first reported by FA-IQ sister publication Ignites.
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