As part of its June 5th landmark issuance of multiple final rules and interpretive releases dealing with broker and advisory standards-of-conduct—which included the long-awaited Regulation Best Interest (or “Reg BI”) for broker/dealers—the SEC also published a detailed interpretive release clarifying and interpreting an investment adviser’s fiduciary duty (the “Fiduciary Release”). While this blog has already provided an analysis of the high-level contours of the SEC’s entire package of rules and releases, we now write to give readers a closer look at the Fiduciary Release, which should be of particular interest to the advisory community.
The Fiduciary Release is the culmination of a regulatory process begun on April 18, 2018, with the SEC’s publication of a draft release on advisory fiduciary duties. The SEC also published draft releases of Reg BI and the Form CRS Relationship Summary (“Form CRS”)(a new disclosure document for advisers and brokers) on that date as well. However, we note at the outset that, unlike the final Reg BI and Form CRS rules—which will not be implemented until June 30, 2020—the Fiduciary Release is effective upon formal publication in the Federal Register. Since that formal publication has already occurred, the Fiduciary Release is now effective. Additionally, we note that the Fiduciary Release is legally applicable to not only SEC-registered investment advisers, but also to state-registered advisers and other investment advisers that are exempt from registration under the federal Advisers Act.
The SEC’s stated objective in issuing the Fiduciary Release is to “reaffirm” and “clarify” the longstanding fiduciary duty of an investment adviser as expressed in section 206 of the Advisers Act. Recognizing that this fiduciary standard has been developed over decades via case law in the form of judicial opinions as well as through SEC enforcement proceedings and no-action letters, the SEC notes that the Fiduciary Release is not intended to be the “exclusive resource” for articulating the fiduciary standard. Importantly, the Fiduciary Release does not explicitly declare any revisions to the advisory standard of conduct (as does Reg BI vis-à-vis broker/dealers).