Advisors are permitted to tell clients they are a “fiduciary” in the disclosures required by the Securities and Exchange Commission’s new advice rules and in all investor communications.
The Investment Adviser Association (IAA) sought the confirmation from the SEC after numerous press reports suggested advisors would no longer be able to tell clients they are fiduciaries.
“Contrary to recent press reports that seem to imply otherwise, the IAA received this confirmation yesterday [June 19] from senior staff in the SEC’s Division of Investment Management,” said Herb Perone, the association’s vice president of communications, in a statement today.
Both Barron's and Wealth Management had reported the SEC had eliminated the ability of RIAs to tell clients they were fiduciaries.
The staff confirmation preserves advisors’ exclusive right to use the term fiduciary in all their investor communications and especially in the SEC’s mandated new Form CRS (customer relationship summary) disclosure, which all financial professionals must begin to deliver to investors beginning next June, when the agency’s Regulation Best Interest advice rules go into effect.
This confirmation is critical as full-fledged advisors seek to differentiate themselves from brokers and describe their legally heightened level of care to investors in the new Regulation Best Interest world, which for the first time allows brokers to tell customers they, too, work in their “best interest.” Confusingly, the term “best interest” has long been used in regulation, legal decisions and by advisors themselves to describe the exclusive heightened legal duties they provide to clients.
The incorrect media reports began popping up last week when alarmed policy experts noticed that the SEC had removed the word “fiduciary” from the form’s instructions spelling out exact language that financial professionals must use to describe themselves.
The word “fiduciary” was left out in the final rule, when it was modified from the proposal in an effort to use “simplified wording that is short, plain language … but still describes the key components of a broker-dealer’s or investment advisor’s standard of conduct when providing recommendations or advice,” Perone said.
The SEC opted to focus instead on the term “best interest” and eliminated the word “fiduciary” from the prescribed statement to be provided by advisors, he added.
“However, as noted in the adopting release and confirmed by SEC staff, final Form CRS requires less prescribed wording overall, so that firms may generally use their own wording to address required topics and will have more flexibility to provide accurate information to investors.
“Accordingly, advisors may still use the term ‘fiduciary’ in Form CRS to further elaborate on the duties owed to their clients, for example, when discussing their conflicts of interest,” Perone said.
Registered investment advisors will have from May 1, 2020, until June 30, 2020, to file their initial Form CRS with the SEC.