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FYI: Reg BI Set for Vote at SEC’s June 5, 2019 Meeting

FYI: The agenda for the SEC’s open meeting on Wednesday, June 5, 2019, includes consideration of whether to adopt:

• Reg. BI
• Form CRS
• Interpretive Guidance Addressing IA Standard of Conduct.

Interestingly, the agenda also lists an item that was not specifically included in the suite of proposals originally bundled together with Reg. BI, namely, whether the Commission should publish an interpretation of the “solely incidental” prong of Section 202(a)(11)(C) of the Investment Advisers Act of 1940. Section 202(a)(11)(C) is the so-called ‘broker-dealer exception’ from the Advisers Act, which excludes from the definition of ‘investment adviser’ any BD whose performance of advisory services is solely incidental to the conduct of its BD business and who does not receive any special compensation therefor.

If the ‘solely incidental’ interpretation on the agenda is just that — a Commission interpretation, as opposed to an actual rule – it could conceivably be published on June 5, even though a draft of the interpretation was not included with the Reg. BI proposal and even though it is not clear at this point exactly what the interpretation would say. I would note, however, that although a draft ‘solely incidental’ interpretation was not published along with proposed Reg. BI, the SEC has raised questions about the broker-dealer exception on several occasions and the interpretive guidance to be considered on June 5 may be an outgrowth of that. For example, in the Reg. BI proposing release, the Commission asked for comment on whether a BD with discretionary authority over a client’s account should ever be viewed as rendering advice that is ‘solely incidental’ to its business as a BD and thus be able to avoid having to register as an investment adviser in reliance on the broker-dealer exception. It would not be surprising if that is the issue addressed by the ‘solely incidental’ interpretive guidance considered on June 5.

Industry watchers have speculated that the Commission vote on Reg. BI will split along party lines, with Chair Clayton and Commissioners Peirce and Roisman (all Republicans) voting in favor, and Commissioner Jackson (Democrat) voting against. The fifth seat on the Commission remains vacant at this time.

The SEC’s June 5 agenda can be accessed here: https://www.sec.gov/news/openmeetings/2019/agenda060519.htm.

It is also worth noting that the DOL has placed on its most recent Regulatory Agenda issuing a Notice of Proposed Rulemaking by December 2019 addressing (once again) who is a ‘fiduciary’ under ERISA: https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201904&RIN=1210-AB82. Of course, agencies are not required to follow their Regulatory Agendas as published in the Federal Register, but it provides some insight into where the agency believes it is going with this issue.

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