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BD And IA Conflicts Of Interest: SEC Staff Says Don’t Set It (Them) And Forget It (Them) – Securities



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SEC staff recently served up a juicy staff bulletin covering the standards of
conduct for broker-dealer and investment adviser conflicts of
interest. The staff bulletin includes 13 Q&As categorized into
five different flavors relating to identifying, eliminating,
mitigating, and disclosing conflicts of interest, as well as
related to product menus. The staff bulletin “draw[s] from key
fiduciary principles that include an obligation to act in a retail
investor’s best interest and not to place [the firm’s] own
interests ahead of the investor’s interest.”

SEC staff published the Q&As to “assist firms and their
financial professionals with addressing conflicts of interest such
that they comply with their obligations to provide advice and
recommendations in the best interest of retail investors.”
Importantly, SEC staff reminded firms that identifying and
addressing conflicts should not be a “check-the-box” or a
“set it and forget it” exercise. Instead, firms should
establish “robust, ongoing process[es]” that are
“tailored to each conflict.”

The staff bulletin is just the latest in the regulatory
rotisserie from the SEC and FINRA related to standards of conduct
for brokers and advisers. See our recent clients alerts covering
the SEC staff bulletin about standards of conduct for
account and rollover recommendations to retail investors
and FINRA exam priorities related to Reg. BI,
which also spotlights the regulatory focus on broker-dealer
adherence to the Reg. BI conflicts of interest obligation.

Firms should expect SEC and FINRA exam teams to spend additional
time peeling back the layers on conflicts during their next virtual
visit. The staff bulletin serves as a useful recipe for
understanding how they will go about that process and, therefore,
serves as an easy-to-digest resource for firms when identifying and
addressing conflicts of interest, including by considering: (i) the
various examples of disclosure and product review processes cited
by the staff; (ii) factors the staff highlighted related to whether
conflicts require mitigation; (iii) mitigation methods identified
by the staff; and (iv) for dual registrants, the staff’s points
of similarity and distinction between the standards of conduct for
brokers and advisers.

Finally, and as what should come as no surprise to well-seasoned
compliance pros, the staff bulletin emphasizes the importance of
“documenting the measures [firms take] to address and monitor
conflicts of interest.” Explaining what you did, why, and how
you did it is measurably easier contemporaneously with the action
taken, long before the heat is turned up during an exam.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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