You are floating on your raft in the hotel pool, drink in hand, watching the clouds go by. You are also an associated person of a broker-dealer. A natural person floats over in your direction. You say "Hello." You introduce yourself; conversation ensues, and mutual connections are discovered. Being somewhat of a driven person, you can't stop yourself from telling your new friend that you have been working with a mutual friend for years, helping him invest for his children's education. You would like to help your raft-mate with her investments, and produce a water logged, but legible, business card. Is this a recommendation captured by Regulation Best Interest?
This and other questions are answered in the SEC's Division of Trading and Markets Frequently Asked Questions on Regulation Best Interest (the "FAQ"), posted January 10, 2020, which discusses recommendations, the disclosure obligation, the care obligation and the conflict of interest obligations (the four core obligations of Regulation Best Interest ("Reg BI")).7
Regarding our floating salesman, the FAQ notes that Reg BI applies to a recommendation of a securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, and does not depend on location. Because this conversation most likely would not reasonably be viewed as a "call to action," it would not be considered a recommendation, but instead a run-of-the-mill "hire me" communication, not subject to Reg BI. Likewise, if an associated person of a broker-dealer tells her retail customers that she is leaving Firm A to move to Firm B, encouraging them to follow her to Firm B, without making a recommendation, that communication is not subject to Reg BI.
The FAQ discusses other questions, including:
- the limited circumstances in which oral disclosures can satisfy the Disclosure Obligation;
- what constitutes a "series of transactions" under the Care Obligation; and
- conflict mitigation measures under the Conflict of Interest Obligation.
7 The FAQ is available at: http://bit.ly/38PwTaz..
Originally published in REVERSEinquiries: Volume 3, Issue
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