SEC Adopts Broker-Dealer Best Interest Standard, Approves Form CRS and Explains Advisers’ Fiduciary Duty; GIPS 2020 Finalized: Regulatory Update for July 2019

Working Hard on Regulation BI

For Broker-Dealers: SEC Actions

Time to Roll-Up Your Sleeves and Dive into Regulation Best Interest: There are many great resources out there that summarize the newly adopted Securities Exchange Act Rule 15l-1 (“Regulation BI”). Here are a few of my favorites:

Where do we begin? First, determine whether Regulation BI applies to your firm. Regulation BI applies to any broker-dealer that recommends securities transactions or investment strategies involving securities transactions to retail customers. For purposes of Regulation BI, the SEC defines Retail Customer as, “a natural person, or the legal representative (non-professional) of such natural person who: (1) receives personalized investment advice about securities from a broker or dealer or investment adviser; and (2) uses such advice primarily for personal, family, or household purposes”. This definition includes Accredited Investors and high-net-worth individuals! The SEC did not define the term recommendation but will continue to rely on existing broker-dealer guidance and case law.

To prepare for Regulation BI, broker-dealers should review their products and services, and document the following:

  1. Identify all securities products, services and strategies offered by your firm;
  2. For each product, service, and strategy listed:
    • Identify all customer-types to whom the products, services, and strategies are made available;
    • Identify the associated risks, rewards, and costs for each product, service and strategy;
    • Identify any material limitations;
  3. Identify all compensation programs in which the Firm and each of its registered representatives participate.
  4. For each product, service, and strategy offered to retail customers and for each compensation program in which the Firm participates, identify and document conflicts of interest that create an incentive for a registered representative to place the interest of the broker-dealer, or themselves, ahead of the interest of the retail customer.
  5. For each conflict of interest, determine what disclosures are necessary. Existing disclosures may still work, but some conflicts may require a new or amended disclosure document.

NOTE: Form CRS will NOT satisfy all of your Disclosure Obligations under Regulation BI.

We also recommend It is also recommended that, if possible, senior members of Compliance, Risk Management, Legal, and Sales participate on a committee to implement Regulation BI. Over the next several months, we will be dissecting each component of Regulation BI and presenting you with various considerations as you move through the process above. MORE TO COME… Contributed by Rochelle A. Truzzi, Senior Compliance Consultant.

For Investment Advisers and Broker-Dealers: SEC Actions

Form CRS Approved. As part of the regulatory package that includes Regulation BI, the SEC adopted a final version of the Form CRS Relationship Summary (“Form CRS”), a new disclosure document, which applies to retail investors and will become Part 3 of the Form ADV. The SEC took to heart many of the comments on the original Form CRS proposal, dropping much of the required language and adopting a more user-friendly question and answer format. The result is a two-page document with five required topics:

  • Introduction (including a link to, a page on the SEC’s Office of Investor Education website that will offer educational information about investment professionals)
  • Relationship and Services
  • Fees, Costs, Conflicts and Standard of Conduct
  • Disciplinary History
  • Additional Information

Firms can use graphics such as charts, hyperlinks and electronic formats. The SEC allows the use of embedded hyperlinks in electronic versions to cross-reference more detailed information on fees, services and conflicts. Firms are also required to disclose how their financial professionals are compensated, along with the conflicts the payments create. Firms must disclose whether the firm and any of its financial professionals have reportable disciplinary history and tell investors where they can find more information about these events instead of including descriptions in the form. The form also requires firms to include “Conversation Starters” throughout the document instead of the proposed “Key Questions to Ask” at the end of the document, as recommended in the initial proposal.

The SEC emphasized the use of “plain English” in Form CRS:

“In a change from the proposal, the instructions will not permit use of legal jargon or technical terms without explaining them in plain English, even if the firm believes that reasonable retail investors will understand those terms.”

Registered firms, or investment advisers with a pending registration application with the SEC before June 20, 2020, have from May 1, 2020, to June 30, 2020, to file the initial Form CRS. After June 30, 2020, any newly registered broker-dealer will need to file a Form CRS by the date its registration becomes effective. Similarly, investment advisers seeking registration after that date will be required to include the Form CRS as part of their application. Stay tuned for more on Form CRS from Hardin Compliance! Contributed by Jaqueline M. Hummel, Partner and Managing Director.

SEC Issues Standard of Conduct for Investment Advisers. The SEC explains what fiduciary duty means for investment advisers. The SEC breaks down an adviser’s fiduciary obligations into two basic duties, a duty of care and a duty of loyalty. The duty of care means an adviser must provide advice in the client’s best interest, seek best execution where the adviser has the responsibility to select broker-dealers to execute trades and monitor the client’s portfolio over the course of the relationship. The duty of loyalty hinges on the adviser making full and fair disclosures of conflicts of interest to its clients so they can make an informed decision about whether to hire the adviser. Check out our blog post for advice on how to comply. Jaqueline M. Hummel, Partner and Managing Director.

When is a Broker-Dealer Not a Broker-Dealer; SEC defines the Scope of the “Solely Incidental” Exclusion. Broker-dealers can rely on an exemption from registration as investment advisers for providing advisory services that are “solely incidental” to their brokerage business under Section 202(a)(11)(C) of the Advisers Act, as long as they do not receive any special compensation for this advice. In light of the passage of Regulation BI, the Commission decided to weigh in on the meaning of the “solely incidental” exclusion from the definition of investment adviser in this new interpretation “Regarding the Solely Incidental Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser.” The Commission discusses two situations where broker-dealers can cross the line: where they exercise investment discretion, and when they provide ongoing monitoring of client accounts. A broker-dealer that has unlimited discretion to effect securities transactions in a customer’s account has crossed the “solely incidental” line. The SEC considers the exercise of limited discretion as acceptable in situations where a broker-dealer engages in trading activity based on specific parameters established by the customer.

Similarly, the SEC views a broker-dealer that agrees to provide continuous account monitoring to clients as crossing the solely incidental line. A broker that occasionally reviews a client’s account to provide buy, sell or hold recommendations would not.

Broker-dealers that want to avoid registration as investment advisers should review their written supervisory procedures to ensure that investment discretion and account monitoring are limited and are reasonably related to the firm’s primary business of effecting securities transactions. Contributed by Jaqueline M. Hummel, Partner and Managing Director.

For Investment Advisers

GIPS 2020 adopted June 30. The CFA Institute issued its much-anticipated update to the Global Investment Performance Standards for Firms on June 30, 2019. Public comment on the 2020 GIPS Standards Exposure Draft and 2020 GIPS Standards for Verifiers Exposure Draft closed on December 31, 2018. The 2020 GIPS standards are effective January 1, 2020. The CFA Institute will be hosting a webinar on the key concepts of the 2020 edition applicable to investment managers on August 7, 2019, at 11 a.m. EST and again on August 7, 2019, at 8 p.m. EST.

The 2020 GIPS Standards are divided into three separate documents, one for asset owners, one for investment management firms, and one for verifiers. According to the adopting release, the 2020 GIPS Standards for Firms include nine sections and a glossary. Sections 1 through 7 are the same as in the 2020 Exposure Draft. Section 8 includes the GIPS Advertising Guidelines applicable to asset managers. The GIPS Standards for Asset Owners include the same content as sections 8 through 12 of the 2020 Exposure Draft (renumbered 21 through 25). Section 26 includes the GIPS Advertising Guidelines applicable to asset owners.

The 2020 GIPS Standards include changes intended to improve the accessibility and appeal of GIPS to alternative and pooled fund managers: (1) new report formats for traditional GIPS-compliant presentations, pooled fund and asset owners reports, (2) options for limited distribution and broadly distributed funds to present pooled fund report or composite reports in certain situations, and (3) options for alternative managers to satisfy the external valuation requirement associated with private market investments. Additionally, GIPS compliant firms would gain flexibility through new options to report Internal Rate of Return rather than Time Weighted Return (TWR) in certain circumstances and a return to the acceptable use of carve-outs.

Looking for more information in the meantime? The CFA Institute has grouped its materials related to GIPS 2020 on a dedicated webpage and summarized the top 10 FAQs raised by firms, service providers and others in the industry during the open comment period. Watch for additional information from Hardin once finalized, and see our October 2018 issue of the Compliance Informer for additional exposure draft details. Contributed by Cari A. Hopfensperger, Senior Compliance Consultant.

Pennsylvania Communicates Custody Requirements for RIAs with Standing Letters of Authorization Arrangements Established by Clients and Qualified Custodians. Following inquiries from industry, the Pennsylvania Department of Banking and Securities recently issued a Bureau Position memorializing its current requirements for custody for investment advisers with standing letter of authorization arrangements (“SLOA”) established by a client and qualified custodian.

Pennsylvania’s position piggybacks on the SEC’s guidance on SLOAs outlined in the Commission’s February 2017 no-action letter to the Investment Adviser Association (IAA). It’s no surprise that Pennsylvania believes arrangements where an investment adviser is authorized to withdraw client funds or securities held with a qualified custodian constitutes custody and triggers disclosure of custody on Item 9 of Form ADV Part 1A. Fortunately, just as the SEC states in its no-action letter to the IAA, so long as an investment adviser meets certain conditions with those arrangements, it can escape the more cumbersome obligations for custody.

The conditions identified by the SEC and now by Pennsylvania are designed to eliminate an investment adviser’s ability to exercise discretion in disbursing client funds. Pennsylvania adopts the same seven requirements identified by the SEC in the IAA no-action letter:

  1. a client must provide a custodian with written instructions including account numbers or name of the third party for disbursements;
  2. a client must control the timing for third-party disbursements;
  3. a custodian must verify the client’s instructions;
  4. a client can end or alter the disbursement instructions;
  5. an investment adviser cannot alter the disbursement instructions;
  6. a custodian maintaining client assets is an unrelated party to the investment adviser; and
  7. the custodian involved in the SLOA provides initial and ongoing notice to the client regarding the instructions.

Pennsylvania-registered investment advisers meeting these seven conditions will not be required to maintain a net worth of $35,000, file an audited balance sheet, complete an internal control report or be subject to an annual surprise examination of clients’ funds or securities by an independent certified public accountant. Pennsylvania gives affected investment advisers six months to comply with its Position and to amend their Form ADVs. Contributed by Carolyn W. Mendelson, Esq., Senior Compliance Consultant.

Photo Credits: Photo by Paolo Nicolello on Unsplash

Written by:

Hardin Compliance Consulting LLC

Hardin Compliance Consulting LLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.