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April 30, 2018

Stroock Special Bulletin

By: André B. Nance, Eric Requenez, Samantha D. van der Bunt

On April 18, 2018, the Securities and Exchange Commission (the “SEC”) issued three companion releases (each, a “Proposal”) proposing a package of rules, interpretations, and requests for comment concerning the standard of care owed to “retail” investors by U.S. registered broker-dealers and U.S. registered investment advisers.  The Proposals represent the SEC’s first major step in formalizing specific “best interest” responsibilities of a broker-dealer to retail customers and retail investors.  The SEC cites a desire to create a standard of responsibility that applies to both broker-dealers and investment advisors and to hold broker-dealers more accountable for the recommendations being made by their representatives.  The SEC has provided for a 90 day comment period which ends July 17, 2018.
Unlike the Department of Labor’s controversial investment advice fiduciary rule, the ultimate status of which remains murky, these Proposals, if adopted in their proposed form, are likely to be less restrictive on investor choice and the business structure of financial services participants.  The Proposals strive to assure the ongoing integrity of existing business models and preserve future flexibility.
This Stroock Special Bulletin identifies two key questions raised by the Proposals and briefly summarizes select reforms in each Proposal.

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