the prospective retail customer use the recommendation.\260\
---------------------------------------------------------------------------

    \260\ See FINRA Regulatory Notice 12-55 at Q6(b).
---------------------------------------------------------------------------

c. Conformity With Form CRS
    The proposed definition of ``retail customer'' differed from the
definition of ``retail investor'' proposed in the Relationship Summary
Proposal, which was a prospective or existing client or customer who is
a natural person (an individual), regardless of the individual's net
worth, including a trust or other similar entity that represents
natural persons.\261\ The proposed definition was different from the
definition of ``retail investor'' because the Relationship Summary was
intended for an earlier state of the relationship between an investor
and a financial professional, was intended to be required regardless of
whether the investor would receive investment advice primarily for
personal, family, or household purposes, and was designed to be
delivered by investment advisers as well as broker-dealers.\262\ Many
commenters recommended that we use the same definition to facilitate
compliance for firms and avoid investor confusion.\263\
---------------------------------------------------------------------------

    \261\ See Relationship Summary Proposal.
    \262\ See Relationship Summary Proposal, Section II, footnote
29.
    \263\ See, e.g., Invesco Letter; BlackRock Letter; ICI Letter;
Committee of Annuity Insurers Letter; Bank of America Letter; CFA
August 2018 Letter; Cetera August 2018 Letter; Fidelity Letter;
Morgan Stanley Letter; Oppenheimer Letter; Raymond James Letter;
SIFMA August 2018 Letter; TIAA Letter; Transamerica August 2018
Letter.
---------------------------------------------------------------------------

    The Commission agrees with commenters that using a similar
definition would provide consistency in the protections, and ease the
compliance burden, of the package of rulemakings. Therefore, the
definitions in Form CRS and Regulation Best Interest have been revised
to generally conform to each other, consistent with our respective
goals in each of these rulemakings.\264\ As discussed above, the
definition of ``retail customer'' for purposes of Regulation Best
Interest has been revised to apply only to natural persons, not all
persons, in line with the definition of ``retail investor'' for
purposes of Form CRS. In addition, the definition in Form CRS as
adopted now includes the ``personal, family or household purposes''
qualifier.
---------------------------------------------------------------------------

    \264\ See Relationship Summary Adopting Release.
---------------------------------------------------------------------------

    While the definitions have generally been harmonized across the
package of rulemakings,\265\ they differ to reflect differences between
the Relationship Summary delivery requirement and the obligations of
broker-dealers under Regulation Best Interest, including that the
Relationship Summary is required whether or not there is a
recommendation and covers any prospective and existing clients and
customers (i.e., a person who ``seeks to receive or receives
services'') of investment advisers as well as broker-dealers.\266\ For
the reasons discussed in the Proposing Release and in response to
commenters who requested clarification on whether Regulation Best
Interest applies to prospective customers,\267\ we would like to
clarify that the definition of ``retail customer'' does not apply to
prospective customers who do not receive and use recommendations from a
broker-dealer,\268\ as discussed above. This distinction reflects
differences between the point in time the Relationship Summary is
delivered to an investor and when the obligations of broker-dealers
pursuant to Regulation Best Interest attach.
---------------------------------------------------------------------------

    \265\ Id.
    \266\ Id.
    \267\ See, e.g., SIFMA August 2018 Letter; Prudential Letter;
Money Management Institute Letter.
    \268\ See Section II.B.3.b.
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d. Treatment of Dual-Registrants
    In the Proposing Release, the Commission stated that Regulation
Best Interest applies only in the context of a brokerage relationship
with a brokerage customer, and specifically, when a broker-dealer is
making a recommendation in the capacity of a broker-dealer. In
particular, for dual-registrants (for purposes of this section, a
broker-dealer that is dually registered as an investment adviser with
the Commission), the obligations associated with Regulation Best
Interest were intended to apply only when they are acting in the
capacity as a broker-dealer.\269\ The Commission recognized the issues
surrounding the determination of whether a dual-registrant is acting in
the capacity of a broker-dealer or an investment adviser, and asserted
that such a determination requires a facts and circumstances analysis,
with no one factor being determinative.\270\
---------------------------------------------------------------------------

    \269\ Although this discussion focuses on the treatment of
broker-dealers that are dually registered with the Commission as
investment advisers, a broker-dealer should perform the same
analysis when it is engaged in other financial services (such as, as
a bank, a commodity trading advisor or a future commission
merchant).
    \270\ Proposing Release at 21596.
---------------------------------------------------------------------------

    Many commenters requested that the Commission clarify the treatment
of dual-registrants and what is expected when offering products in both
types of accounts.\271\ Some commenters asserted that dually registered
financial professionals should be held to a fiduciary standard.\272\ A
few commenters requested clarification on how Regulation Best Interest
applies to particular scenarios, some of which involved dual-
registrants.\273\
---------------------------------------------------------------------------

    \271\ See, e.g., SIFMA August 2018 Letter; CCMC Letters; NASAA
August 2018 Letter.
    \272\ See PIABA Letter; AICPA Letter.
    \273\ See SIFMA August 2018 Letter; Letter from Michael Pieciak,
NASAA President, Commissioner Vermont Department of Financial
Regulation, NASAA (Feb. 19, 2019) (``NASAA February 2019 Letter'').
---------------------------------------------------------------------------

    In response, the Commission is reaffirming the guidance provided in
the proposal and providing further clarification on when and how
Regulation Best Interest would apply to dual-registrants. As stated in
the proposal, Regulation Best Interest would not apply to investment
advice provided to a retail customer by a dual-registrant when acting
in the capacity of an investment adviser, even if the retail customer
has a brokerage relationship with the dual-registrant or the dual-
registrant executes the transaction in its brokerage capacity.\274\
Similarly, as proposed, we are confirming that a dual-registrant is an
investment adviser solely with respect to those accounts for which a
dual-registrant provides investment advice or receives compensation
that subjects it to the Advisers Act.\275\
---------------------------------------------------------------------------

    \274\ This analysis would apply even if the dual-registrant
receives transaction-based compensation for executing the
transaction because the dual-registrant did not provide a
recommendation in its capacity as a broker-dealer. While Regulation
Best Interest would not apply in this situation, other provisions of
the federal securities laws and SRO rules would apply to the actions
taken or services provided by the broker-dealer.
    \275\ See Proposing Release at 21596; see also Certain Broker-
Dealers Deemed Not To Be Investment Advisers, Exchange Act Release
No. 51523 (Apr. 12, 2005) at 8 (``Release 51523''); Interpretive
Rule Under the Advisers Act Affecting Broker-Dealers, Advisers Act
Release No. 2652 (Sep. 24, 2007). See also Fiduciary Interpretation.
---------------------------------------------------------------------------

    While we acknowledge that some commenters believe all dual-
registrants

should be held to a fiduciary standard, for the reasons discussed in
Section II.A, the Commission believes that Regulation Best Interest
enhances the obligations that apply when a broker-dealer makes a
recommendation to a retail customer by drawing from key principles
underlying the fiduciary obligation that applies to investment advisers
under the Advisers Act, while being tailored to the broker-dealer
model.\276\
---------------------------------------------------------------------------

    \276\ See Section I.
---------------------------------------------------------------------------

    As stated in the proposal, determining the capacity in which a
dual-registrant is making a recommendation is a facts and circumstances
test, with no one factor being determinative, but the Commission
considers, among other factors, the type of account, how the account is
described, the type of compensation and the extent to which the dual-
registrant made clear to the customer or client the capacity in which
it was acting.\277\
---------------------------------------------------------------------------

    \277\ Proposing Release at 21596.
---------------------------------------------------------------------------

    In addition and in response to a commenter's presentation \278\ of
particular scenarios in its comment letter,\279\ we would like to
confirm or correct the commenter's understanding of Regulation Best
Interest in practice to provide further guidance to firms as it relates
to their examples of dual-registrants.\280\ For example, in the
commenter's explanation of a scenario related to a recommendation to
open a fee-based account, we agree that Regulation Best Interest would
not apply when a dually registered financial professional of a dually
registered broker-dealer and investment adviser, who is acting in the
capacity of an investment adviser, recommends a fee-based account. We
note, however, that the dually registered financial professional would
need to comply with the Advisers Act as well as the requirements with
respect to Form CRS for the firm.\281\ In response to another scenario
in which a financial professional who is dually registered provides a
holistic review of the overall performance of a family's accounts,
which are both brokerage and advisory, whether Regulation Best Interest
applies depends on a facts and circumstances analysis. Regulation Best
Interest would apply if the financial professional in her brokerage
capacity (disclosed pursuant to the Disclosure Obligation), provides a
recommendation of a securities transaction or investment strategy
involving securities to the family in the course of the holistic
review.\282\
---------------------------------------------------------------------------

    \278\ See SIFMA August 2018 Letter. For purposes of the
presented scenarios, SIFMA has assumed that the customer is a
``retail customer.''
    \279\ Id.
    \280\ For purposes of this section, we have only addressed the
scenarios applicable to dual-registrants and have not confirmed or
rejected the commenter's analysis of the other scenarios.
    \281\ See Fiduciary Interpretation at Section II.B.1. In
providing advice about account type, the adviser should consider
both types of accounts (i.e., brokerage and advisory accounts) when
determining whether the advice is in the client's best interest. See
also NASAA February 2019 Letter (stating that Regulation Best
Interest would not apply but instead that the fiduciary duty under
the Advisers Act would apply).
    \282\ But see NASAA February 2019 Letter (stating that ``a full
fiduciary duty'' should be imposed on the financial adviser as to
all accounts in this case as the family has probably entrusted their
entire financial well-being to one financial professional).
---------------------------------------------------------------------------

C. Component Obligations

    As proposed Regulation Best Interest's obligation to ``act in the
best interest of the retail customer . . . without placing the
financial or other interest of the [broker-dealer] ahead of the retail
customer'' would have been satisfied by complying with four specified
obligations: A Disclosure Obligation, a Care Obligation, and two
Conflict of Interest Obligations.\283\ Failure to comply with any of
these proposed requirements would have violated Regulation Best
Interest.\284\
---------------------------------------------------------------------------

    \283\ Proposing Release at 21598.
    \284\ Id.
---------------------------------------------------------------------------

    As discussed above, we have determined to retain the overall
structure and scope of the proposed rule, but are modifying and
clarifying the component obligations that a broker-dealer must satisfy
in order to meet the General Obligation. As adopted, the General
Obligation is satisfied only if the broker-dealer complies with four
specified component obligations: (1) The Disclosure Obligation; (2) the
Care Obligation; (3) the Conflict of Interest Obligation; and (4) the
Compliance Obligation. Each of these component obligations is discussed
below. Whether a broker-dealer has acted in the retail customer's best
interest under the General Obligation will turn on an objective
assessment of the facts and circumstances of how these specific
components of Regulation Best Interest are satisfied at the time that
the recommendation is made (and not in hindsight). The specific
component obligations of Regulation Best Interest are mandatory, and
failure to comply with any of the components would violate Regulation
Best Interest.
1. Disclosure Obligation
    We proposed a Disclosure Obligation that would require a broker-
dealer ``to, prior to or at the time of [a] recommendation, reasonably
disclose to the retail customer, in writing, the material facts
relating to the scope and terms of the relationship with the retail
customer and all material conflicts of interest associated with the
recommendation.'' The Proposing Release states that, for purposes of
the Disclosure Obligation, we would consider the following to be
examples of material facts relating to the scope and terms of the
relationship with the retail customer: (1) That the broker-dealer was
acting in a broker-dealer capacity with respect to the recommendation;
(2) fees and charges that would apply to the retail customer's
transactions, holdings, and accounts; and (3) type and scope of
services provided by the broker-dealer, including, for example,
monitoring the performance of the retail customer's account.
    As stated in the Proposing Release, we understand that broker-
dealers typically provide information about their services and
accounts, which may include disclosures concerning the broker-dealer's
capacity, fees, services, and conflicts, on their firm websites and in
their account opening agreements.\285\ Furthermore, while broker-
dealers are subject to a number of specific disclosure obligations when
they effect certain customer transactions, and are subject to the
antifraud provisions of the federal securities laws, broker-dealers are
not currently subject to an explicit and broad disclosure requirement
under the Exchange Act regarding the scope and terms of the broker-
dealer relationship.\286\ To promote broker-dealer recommendations that
are in the best interest of retail customers, we determined it was
necessary to impose a more explicit and broader disclosure obligation
on broker-dealers than that which currently exists under the federal
securities laws and SRO rules.\287\
---------------------------------------------------------------------------

    \285\ Proposing Release at 21599.
    \286\ Proposing Release at 21599-21600.
    \287\ Proposing Release at 21600.
---------------------------------------------------------------------------

    We solicited comment on the Disclosure Obligation and commenters
addressed several aspects of this proposed obligation, including the
interpretation of each required element, as discussed in the relevant
sections below.\288\ In consideration of these comments, we are
revising the Disclosure Obligation to require a broker-dealer, prior to
or at the time of the recommendation, to provide to the retail
customer, in writing, full and fair disclosure \289\ of all material
facts related to the scope and terms of the

relationship with the retail customer and all material facts relating
to conflicts of interest that are associated with the
recommendation.\290\ We are explicitly requiring in the rule text the
disclosure of examples in the Proposing Release of the ``material facts
relating to the scope and terms of the relationship with the retail
customer:'' (1) That the broker, dealer or such natural person is
acting as a broker, dealer or an associated person of a broker-dealer
with respect to the recommendation; (2) the material fees and costs
that apply to the retail customer's transactions, holdings, and
accounts; and (3) the type and scope of services provided to the retail
customer, including: any material limitations on the securities or
investment strategies involving securities that may be recommended to
the retail customer.
---------------------------------------------------------------------------

    \288\ See, e.g., Better Markets August 2018 Letter; CCMC
Letters; LPL August 2018 Letter; Schwab Letter; Morgan Stanley
Letter; CFA August 2018 Letter; IPA Letter; NASAA Letter; SIFMA
August 2018 Letter.
    \289\ See Section II.C.1.c, Disclosure Obligation, Full and Fair
Disclosure.
    \290\ As discussed in more detail below, aspects of the
Disclosure Obligation may be satisfied by other regulatory
requirements.
---------------------------------------------------------------------------

    The Disclosure Obligation requires the disclosure of all material
facts related to the scope and terms of the relationship with the
retail customer. The material facts identified in Regulation Best
Interest are the minimum of what must be disclosed. Similar to what was
proposed, broker-dealers will need to disclose in writing prior to or
at the time of a recommendation any material facts that relate to the
``scope and terms of the relationship.'' As to what constitutes a
``material'' fact related to the ``scope and terms of the
relationship,'' the standard for materiality for purposes of the
Disclosure Obligation is consistent with the one the Supreme Court
articulated in Basic v. Levinson.\291\ Specifically, a fact is material
if there is ``a substantial likelihood that a reasonable shareholder
would consider it important.'' In the context of Regulation Best
Interest, the standard is the retail customer, as defined in the rule.
---------------------------------------------------------------------------

    \291\ Basic, Inc. v. Levinson, 485 U.S. 224 (1988).
---------------------------------------------------------------------------

    In response to comments, we are also refining and clarifying the
treatment of conflicts of interest under Regulation Best Interest by:
(1) Generally consistent with the fiduciary duty under the Advisers
Act, adopting for purposes of Regulation Best Interest, the definition
of ``conflict of interest'' associated with a recommendation as ``an
interest that might incline a broker, dealer, or a natural person who
is an associated person of a broker or dealer--consciously or
unconsciously--to make a recommendation that is not disinterested'';
\292\ and (2) revising the Disclosure Obligation to require disclosure
of ``material facts'' relating to such conflicts of interest that are
associated with the recommendation. Under this approach, all conflicts
of interest as so defined will be covered by Regulation Best Interest
(and thus, will be subject to the Conflict of Interest Obligation
described below). However, only ``material facts'' regarding these
conflicts of interest are required to be disclosed under the Disclosure
Obligation.\293\
---------------------------------------------------------------------------

    \292\ This is the same as the definition of ``material conflict
of interest'' discussed in the Proposing Release but eliminates
``material'' and ``a reasonable person would expect'' for the
reasons discussed below.
    \293\ The Conflict of Interest Obligation requires, among other
things, that a broker-dealer establish written policies and
procedures reasonably designed to identify and disclose all
conflicts of interest associated with a recommendation. Such
disclosure is required to be provided in accordance with the
Disclosure Obligation. See Section II.C.3.d.
---------------------------------------------------------------------------

    As discussed above, we are adopting a new set of disclosure
requirements designed to reduce retail investor confusion in the
marketplace for brokerage and advisory services and to assist retail
investors with the process of deciding whether to engage a particular
firm or financial professional and whether to establish an investment
advisory or brokerage relationship.\294\ Specifically, we are requiring
broker-dealers and investment advisers to deliver to retail investors a
Relationship Summary.\295\ The Relationship Summary will provide
succinct information about the relationships and services the firm
offers to retail investors, fees and costs that retail investors will
pay, specified conflicts of interest and standards of conduct, and
disciplinary history, among other things.\296\ The Relationship Summary
has a distinct purpose: It is intended to summarize information about a
particular broker-dealer or investment adviser in a format that allows
for comparability among the enumerated items, encourages investors to
ask questions, and highlights additional sources of information.
---------------------------------------------------------------------------

    \294\ See Relationship Summary Adopting Release.
    \295\ See Relationship Summary Adopting Release.
    \296\ See Relationship Summary Adopting Release at Section I.
For purposes of Form CRS, ``retail investor'' is defined as ``a
natural person, or the legal representative of such natural person,
who seeks to receive or receives services primarily for personal,
family, or household purposes.''
---------------------------------------------------------------------------

    As a general matter, the Relationship Summary reflects an initial
layer of disclosure, with the Disclosure Obligation reflecting more
specific and additional, detailed layers of disclosure.\297\ We believe
the Relationship Summary and the Disclosure Obligation, while separate
obligations with significant individual value, will complement each
other and, consistent with our layered approach to disclosure, are
designed to build upon each other to provide different levels of key
information and may be required to be delivered at different times. In
addition, we believe the Relationship Summary and Disclosure Obligation
will improve the quality and consistency of disclosures and thus: (1)
Reduce the information asymmetry that may exist between a retail
customer and their broker-dealer, and (2) facilitate customer
comparisons of different broker-dealers which we expect will, in turn,
increase competition among broker-dealers, including with respect to
fees and costs.\298\
---------------------------------------------------------------------------

    \297\ Nevertheless, as discussed below where relevant, in some
instances disclosures made pursuant to Form CRS may be sufficient to
satisfy some aspects of the Disclosure Obligation.
    \298\ See infra footnote 1192 and accompanying text.
---------------------------------------------------------------------------

    As discussed below, we have identified those items of information
that we consider to be ``material facts'' under the Disclosure
Obligation. Though there are disclosures in the Relationship Summary
that could satisfy the Disclosure Obligation, in most instances the
Relationship Summary will not be sufficient.\299\ Moreover, as
discussed below, we believe the Disclosure Obligation can be satisfied
to varying degrees with existing documents provided to retail
customers, such as account opening documents, with a standalone
document, or by some combination. However, we encourage broker-dealers,
in deciding whether to rely on such an existing disclosure document or
whether to include or repeat information from existing disclosures, to
consider the usefulness and ease of understanding for retail customers
of any existing disclosure document.
---------------------------------------------------------------------------

    \299\ For example, as noted below, a standalone broker-dealer
will be able to satisfy the Disclosure Obligation's requirement to
disclose the broker-dealer's capacity by delivering the Relationship
Summary to the retail customer.
---------------------------------------------------------------------------

Oral Disclosure or Disclosure After a Recommendation
    As discussed in more detail below, a number of commenters
highlighted practical difficulties associated with delivering
disclosure either in writing, or prior to or at the time of a
recommendation in some instances. Although Regulation Best Interest
requires that the Disclosure Obligation be made ``in writing,'' we
recognize the challenges associated with providing written disclosure
in each instance that disclosure may be required. For example, a
broker-dealer may need to supplement, clarify or update written
disclosure it has previously made before

or at the time it provides a customer with a recommendation. As we
stated in the Proposing Release, we recognized that broker-dealers may
provide recommendations by telephone and may need to offer clarifying
disclosure orally in some instances subject to certain conditions, such
as a dual-registrant informing a retail customer of the capacity in
which the dual-registrant is acting in conjunction with a
recommendation. We stated that a broker-dealer could orally clarify the
capacity in which it is acting at the time of the recommendation if it
had previously provided written disclosure to the retail customer
beforehand disclosing its capacity as well as the method it planned to
use to clarify its capacity at the time of the recommendation.
    Similarly, although Regulation Best Interest requires a broker-
dealer to disclose, prior to or at the time of a recommendation, all
material facts relating to the scope and terms of the relationship with
the retail customer and relating to conflicts of interest that are
associated with the recommendation, we recognize that in some instances
a broker-dealer may not have all the material facts at the time of the
recommendation, or that such disclosure is provided to the retail
customer pursuant to an existing regulatory obligation, such as the
delivery of a product prospectus or a trade confirmation, after the
execution of the trade.\300\ In the Proposing Release we stated that in
circumstances where a broker-dealer determines to provide an initial,
more general disclosure (such as a relationship guide) followed by
specific information in a subsequent disclosure that is provided after
the recommendation (e.g., a trade confirmation) the initial disclosure
should address when and how a broker-dealer would provide more specific
information regarding the material fact or conflict in a subsequent
disclosure (e.g., after the trade in the trade confirmation). We noted
also that whether there is sufficient disclosure in both the initial
disclosure and any subsequent disclosure would depend on the facts and
circumstances.
---------------------------------------------------------------------------

    \300\ See infra footnote 525.
---------------------------------------------------------------------------

    We continue to believe that some flexibility with respect to the
provision by broker-dealers of written and oral disclosure, as well as
with respect to the timing that disclosure is made, is appropriate in
certain circumstances, such as when a broker-dealer updates its written
disclosures orally in order to reflect facts not reasonably known at
the time the written disclosure is provided. In such circumstances, a
broker-dealer may satisfy its Disclosure Obligation by making
supplemental oral disclosure not later than the time of the
recommendation, provided that the broker-dealer maintains a record of
the fact that oral disclosure was provided to the retail customer.\301\
In addition, in the limited instances where existing regulations permit
disclosure after the recommendation is made (e.g., trade confirmation,
prospectus delivery), a broker dealer may satisfy its Disclosure
Obligation regarding the information contained in the applicable
disclosure document by providing such document to the retail customer
after the recommendation is made. Before supplementing, clarifying or
updating written disclosures in the limited circumstances described
above, broker-dealers must provide an initial disclosure in writing
that identifies the material fact and describes the process through
which such fact may be supplemented, clarified or updated.
---------------------------------------------------------------------------

    \301\ See Section II.D, Record-Making and Recordkeeping.
---------------------------------------------------------------------------

    For example, with regard to product-level fees, a broker-dealer
could provide an initial standardized disclosure of product-level fees
generally (e.g., reasonable dollar or percentage ranges), noting that
further specifics for particular products appear in the product
prospectus, which will be delivered after a transaction in accordance
with the delivery method the retail customer has selected, such as by
mail or electronically.\302\ Similarly, with regard to the disclosure
of a broker-dealer's capacity, a dual-registrant could disclose that
recommendations will be made in a broker-dealer capacity unless
otherwise expressly stated at the time of the recommendation, and that
any such statement will be made orally. Or, a broker-dealer could
disclose that its associated persons may have conflicts of interest
beyond than those disclosed by the broker-dealer, and that associated
persons will disclose, where appropriate, any additional material
conflicts of interest not later than the time of a recommendation, and
that any such disclosure will be made orally.
---------------------------------------------------------------------------

    \302\ While using a percentage or dollar range to describe a fee
can be appropriate, that range should be designed to reasonably
reflect the actual fees to be charged. For example, if the firm
offers in almost all instances funds with up-front sales charges of
between 5% and 5.5%, but the disclosure states that mutual fund up-
front sales charges may ``range from 0.0% to 5.5%,'' then the
broker-dealer would need to evaluate whether the disclosure should
be revised to more accurately describe the sales charge. See
discussion in Section II.C.1.a, Disclosure Obligation, Material
Facts Regarding Scope and Terms of the Relationship, Fees and Costs,
Particularly of Fees and Costs Disclosed.
---------------------------------------------------------------------------

    We believe it is in the public interest and consistent with the
protection of investors to permit such flexibility in the delivery of
information pursuant to the Disclosure Obligation. Providing retail
customers written summary information about material facts relating to
a recommendation and indicating that additional information will be
forthcoming, the point at which the additional information will be
delivered, and the method by which it will be conveyed, highlights for
retail customers a useful summary of information while allowing for the
practical realities of the process by which securities recommendations
are made and transactions are executed and leaving longstanding
existing disclosure regimes, particularly those relating to product
issuer disclosure, undisturbed.
Other Liabilities Under the Federal Securities Laws
    Further, the requirements under Regulation Best Interest that
particular information be disclosed is not determinative of a broker-
dealer or associated person's other potential liabilities under the
general antifraud provisions of the federal securities laws for failure
to disclose material information to a customer at the time of a
recommendation.\303\ In addition, we

remind broker-dealers that even full and fair disclosure of the
information required by the Disclosure Obligation is not sufficient,
standing alone, to satisfy the Care Obligation, and that even
sufficient disclosure cannot cure a violation of the Care Obligation.
---------------------------------------------------------------------------

    \303\ Broker-dealers are liable under the antifraud provisions
for failure to disclose material information to their customers when
they have a duty to make such disclosure. See Basic v. Levinson, 485
U.S. 224, 239 footnote 17 (1988) (``Silence, absent a duty to
disclose, is not misleading under Rule 10b-5.''); Chiarella v. U.S.,
445 U.S. 222, 228 (1980) (explaining that a failure to disclose
material information is only fraudulent if there is a duty to make
such disclosure arising out of ``a fiduciary or other similar
relation of trust and confidence''); SEC v. Monarch Funding Corp.,
192 F.3d 295, 308 (2d Cir. 1999) (explaining that defendant is
liable under Section 10(b) and Rule 10b-5 for material omissions
``as to which he had a duty to speak''). Generally, under the
antifraud provisions, a broker-dealer's duty to disclose material
information to its customer is based upon the scope of the
relationship with the customer, which is fact intensive. See, e.g.,
Conway v. Icahn & Co., Inc., 16 F.3d 504, 510 (2d Cir. 1994) (``A
broker, as agent, has a duty to use reasonable efforts to give its
principal information relevant to the affairs that have been
entrusted to it.''). For example, where a broker-dealer processes
its customers' orders, but does not recommend securities or solicit
customers, then the material information that the broker-dealer is
required to disclose is generally narrow, encompassing only the
information related to the consummation of the transaction. See,
e.g., Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 536 (2d
Cir. 1999). However, courts have found that a broker-dealer's duty
to disclose material information under the antifraud provisions is
broader when the broker-dealer is making a recommendation to its
customer. See, e.g., Hanly, 415 F.2d 589, 597 (2d Cir. 1969). When
recommending a security, broker-dealers generally are liable under
the antifraud provisions if they do not give ``honest and complete
information'' or disclose any material adverse facts or material
conflicts of interest, including any economic self-interest. See,
e.g., De Kwiatkowski v. Bear, Stearns & Co., 306 F.3d 1293, 130 (2d
Cir. 2002); Chasins v. Smith, Barney & Co., 438 F.2d 1167, 1172 (2d
Cir. 1970). See Proposing Release at 21599 footnote 176.
---------------------------------------------------------------------------

Disclosures by Natural Persons Associated With a Broker-Dealer
    The Disclosure Obligation applies to a broker, dealer, or natural
person who is an associated person of a broker or dealer.\304\ As
stated in the Proposing Release, we are requiring not only the broker-
dealer entity, but also individuals who are associated persons of a
broker-dealer (e.g., registered representatives) to comply with
specified components of Regulation Best Interest when making
recommendations to retail customers.\305\ One commenter requested
guidance on how an associated person should comply with the Disclosure
Obligation.\306\ In response, we believe that a natural person who is
an associated person of a broker-dealer may in many instances rely on
the disclosures provided by the broker-dealer with which he or she is
associated to satisfy the Disclosure Obligation. However, when an
associated person knows or should have known that the broker-dealer's
disclosure is insufficient to describe ``all material facts,'' the
associated person must supplement that disclosure. For example, if an
associated person of a broker-dealer that offers a full range of
securities products is licensed solely as a Series 6 Registered
Representative,\307\ and can sell only mutual funds, variable annuities
and other enumerated products, that limitation on the scope of services
provided by the particular associated person must be sufficiently clear
in the broker-dealer's disclosures; otherwise additional clarifying
disclosure by the associated person would be necessary.
---------------------------------------------------------------------------

    \304\ Rule 15l-1(a)(2)(i).
    \305\ Proposing Release at 21592.
    \306\ See NASAA August 2018 Letter (recommending that the
Commission provide specific instructions on how associated persons
should disclose capacity in which they are acting).
    \307\ A candidate who passes the Series 6 exam is qualified for
the solicitation, purchase and/or sale of the following securities
products: Mutual funds (closed-end funds on the initial offering
only), Variable annuities, Variable life insurance, Unit investment
trusts (UITs), Municipal fund securities (e.g., 529 savings plans,
local government investment pools (LGIPs)). FINRA, Series 6--
Investment Company and Variable Contracts Products Representative
Exam, Permitted Activities, available at: http://www.finra.org/industry/series6#permitted-activities.
---------------------------------------------------------------------------

a. Material Facts Regarding Scope and Terms of the Relationship
    As discussed above, the proposed Disclosure Obligation would
require a broker-dealer to, among other things, ``prior to or at the
time of such recommendation, reasonably disclose to the retail
customer, in writing, the material facts relating to the scope and
terms of the relationship with the retail customer.'' We proposed to
consider the following to be examples of material facts relating to the
scope and terms of the relationship with the retail customer: (i) That
the broker-dealer was acting in a broker-dealer capacity with respect
to the recommendation; (ii) fees and charges that would apply to the
retail customer's transactions, holdings, and accounts; and (iii) the
type and scope of services provided by the broker-dealer, including,
for example, monitoring the performance of the retail customer's
account.
    Commenters requested that we clarify which facts a broker-dealer
would be required to disclose about the scope and terms of the
relationship it has with a customer under Regulation Best
Interest.\308\ In particular, several commenters recommended that the
Commission clarify how a dual-registrant should disclose its capacity
regarding its recommendations.\309\ Other commenters recommended that
the Commission define the scope of fees a broker-dealer must disclose
\310\ and the form that disclosure should take.\311\ In addition, some
commenters requested clarity on the types of services that a broker-
dealer would be required to disclose, including limitations on
securities offered \312\ and account monitoring services.\313\
---------------------------------------------------------------------------

    \308\ See, e.g., SIFMA August 2018 Letter; Edward Jones Letter;
NASAA August 2018 Letter; AARP August 2018 Letter; PIABA Letter;
Prudential Letter.
    \309\ See, e.g., SIFMA August 2018 Letter; Edward Jones Letter.
    \310\ See, e.g., Bank of America Letter (recommending that the
Commission apply a ``materiality'' threshold to determine which fees
should be disclosed).
    \311\ See, e.g., SIFMA August 2018 Letter (stating that a
broker-dealer's disclosure of a range of customer costs per product
should be sufficient); CFA August 2018 Letter (stating a broker-
dealer's disclosure of percentages or ranges of cost information
would do little to enlighten investors about the true costs of
brokers' advice services).
    \312\ See, e.g., NY Life Letter (stating that an insurer may
appropriately focus its career agents on the distribution of
variable insurance products that the insurer manufactures, so long
as limitations on the universe of available products are disclosed
to consumers and supervisory procedures are in place to ensure that
a variable insurance product is in the client's best interest); CFA
Institute Letter (stating that the Disclosure Obligation should
complement the information presented in Form CRS and provide greater
specificity about, among other things, the type and scope of
services offered by the broker-dealer).
    \313\ See, e.g., IAA August 2018 Letter (recommending that the
Commission clarify that Regulation Best Interest would apply to all
advisory activities that broker-dealers agree to provide (e.g.,
ongoing monitoring for purposes of recommending changes in
investments)).
---------------------------------------------------------------------------

    As discussed below, in response to comments, we have revised the
Disclosure Obligation to require disclosure of ``all material facts
relating to the scope and terms of the relationship with the retail
customer, including: (i) That the broker, dealer or such natural person
is acting as a broker, dealer or an associated person of a broker-
dealer with respect to the recommendation; (ii) the material fees and
costs that apply to the retail customer's transactions, holdings, and
accounts; and (iii) the type and scope of services provided to the
retail customer, including any material limitations on the securities
or investment strategies involving securities that may be recommended
to the retail customer.'' \314\ In addition, we are clarifying the
scope of the obligation.
---------------------------------------------------------------------------

    \314\ Rule 15l-1(a)(2)(i)(A).
---------------------------------------------------------------------------

    As we did in the Proposing Release, we emphasize that although we
have explicitly identified the capacity in which the broker-dealer is
acting, material fees and costs, and the type and scope of services, as
what would at a minimum be required to be disclosed as ``material facts
relating to the scope and terms of the relationship with the retail
customer,'' the Disclosure Obligation requires broker-dealers and
associated persons to disclose ``all material facts relating to the
scope of the terms of the relationship,'' (emphasis added) and broker-
dealers and such associated persons thus will need to consider, based
on the facts and circumstances, whether there are other material facts
relating to the scope and terms of the relationship with the retail
customer that need to be disclosed. This analysis generally should
include consideration of whether information in the Relationship
Summary constitutes a ``material fact'' that could appropriately be
expanded upon in satisfying the Disclosure Obligation. It would be
possible, but would be unlikely for most

broker-dealers, for the abbreviated format of the Relationship Summary
to sufficiently disclose ``all material facts'' regarding the scope and
terms of the relationship such that no further information would be
required to satisfy the Disclosure Obligation.
Capacity In Which the Broker-Dealer Is Acting
    In the Proposing Release, the Commission identified that the
capacity in which a broker-dealer is acting is a material fact relating
to the scope and terms of a customer relationship subject to the
Disclosure Obligation.\315\ In so identifying this critical element of
information, we hoped to promote greater awareness among retail
customers of the capacity in which their financial professional or firm
acts with respect to recommendations.
---------------------------------------------------------------------------

    \315\ Proposing Release at 21601.
---------------------------------------------------------------------------

    Several commenters requested additional guidance on how dual-
registrants and their associated persons could comply with the proposed
Disclosure Obligation in this respect.\316\ Some commenters stated that
repeated disclosures of capacity would distract customers from more
important disclosures related to a recommendation and could lead to
confusion.\317\ While we received comments expressing concerns that our
proposed approach might lead to investor confusion,\318\ many of these
commenters were seeking clarity regarding this requirement and not its
elimination.\319\
---------------------------------------------------------------------------

    \316\ See, e.g., NASAA August 2018 Letter (requesting that the
Commission provide guidance to associated persons of dual-
registrants explaining how they should disclose the capacity in
which they are acting and whether they are providing a
recommendation or advice); Better Markets August 2018 Letter; CFA
August 2018 Letter; Fidelity Letter; IPA Letter; SIFMA August 2018
Letter; Edward Jones Letter; CCMC Letters.
    \317\ See, e.g., Edward Jones Letter (recommending that the
Commission not require repeated capacity disclosures to customers
because it would be redundant and potentially confuse customers);
SIFMA August 2018 Letter (stating that disclosure of capacity should
not be required at the time of the recommendation as it would cause
unnecessary delay and distract customers from more important
disclosures regarding account features and recommendations); Better
Markets August 2018 Letter (stating that one-time written disclosure
about a dual-registrant's advisory capacity, followed by future oral
disclosures when they change roles when making recommendations would
be confusing).
    \318\ See, e.g., Better Markets August 2018 Letter; CFA August
2018 Letter (stating that flexibility in disclosure will result in
disclosures that do not effectively convey key information
especially for dual-registrants as customers will not understand the
capacity the dual-registrant is acting in at the particular time or
its significance).
    \319\ See, e.g., SIFMA August 2018 Letter (requesting that the
Commission clarify the application of the Disclosure Obligation to
dually registered firms and personnel, including what, and how
frequently, disclosure is required to put customer on notice of
their capacity); Edward Jones Letter; IPA Letter; CCMC Letters.
---------------------------------------------------------------------------

    In response to commenters, we are revising Regulation Best Interest
to explicitly require disclosure of capacity, which the Proposing
Release addressed in guidance. Therefore, Rule 15l-1(a)(2)(i)(A)
requires that the broker, dealer, or natural person who is an
associated person of a broker or dealer, prior to or at the time of the
recommendation, provide the retail customer, in writing, full and fair
disclosure of all material facts relating to the scope and terms of the
relationship with the retail customer, including that the broker-dealer
or such natural person is acting as a broker-dealer or an associated
person of a broker-dealer with respect to the recommendation.
    This disclosure is designed to improve awareness among retail
customers of the capacity in which their financial professional or
broker-dealer acts when it makes recommendations so that the retail
customer can more easily identify and understand their relationship, a
goal shared with the Relationship Summary.\320\ Form CRS requires a
firm to state the name of the broker-dealer or investment adviser and
whether the firm is registered with the Commission as a broker-dealer,
investment adviser, or both.\321\ A standalone broker-dealer (i.e., a
broker-dealer not also registered as an investment adviser) will
generally be able to satisfy the Disclosure Obligation's requirement to
disclose the broker-dealer's capacity by delivering the Relationship
Summary to the retail customer.
---------------------------------------------------------------------------

    \320\ See Relationship Summary Proposal at 21420.
    \321\ See Relationship Summary Adopting Release at Section II.C.
---------------------------------------------------------------------------

    For broker-dealers who are dually registered, and for associated
persons who are either dually registered or, who are not dually
registered but only offer broker-dealer services through a firm that is
dually registered, the information contained in the Relationship
Summary will not be sufficient to disclose their capacity in making a
recommendation. Although some commenters expressed concerns about
potential investor confusion caused by ``additional'' disclosure
regarding a dual-registrant's capacity, we believe that the Disclosure
Obligation will not duplicate or confuse, but instead will provide
clarifying detail on capacity to supplement the information contained
in the Relationship Summary. Accordingly, we are clarifying that dually
registered associated persons and associated persons who are not dually
registered but only offer broker-dealer services through a firm that is
dually registered as an investment adviser with the Commission or with
a state, must disclose whether they are acting (or, in the case of the
latter, that they are only acting) as an associated person of a broker-
dealer to satisfy the Disclosure Obligation.\322\ An associated person
of a dual-registrant who does not offer investment advisory services
must disclose that fact as a material limitation in order to satisfy
the Disclosure Obligation.
---------------------------------------------------------------------------

    \322\ Financial professionals with registrations to offer
services as a representative of a broker-dealer and investment
adviser may offer services through a dual-registrant, affiliated
firms, or unaffiliated firms, or only offer one type of service
notwithstanding their dual licensing. Financial professionals who
are not dually registered may offer one type of service through a
firm that is dually registered. See Relationship Summary Adopting
Release at Section II.B.4.
---------------------------------------------------------------------------

    Furthermore, as discussed in greater detail below, we would presume
the use of the terms ``adviser'' and ``advisor'' by (1) a broker-dealer
that is not also registered as an investment adviser or (2) a financial
professional that is not also a supervised person of an investment
adviser to be a violation of the Disclosure Obligation under Regulation
Best Interest. Disclosure of capacity may, in part, be made orally
under the circumstances outlined in Section II.C.1, Oral Disclosure or
Disclosure After a Recommendation. For example, a broker-dealer may
disclose that: ``All recommendations will be made in a broker-dealer
capacity unless otherwise expressly stated at the time of the
recommendation; any such statement will be made orally.'' In this case,
no further oral or written disclosure would be required until a
recommendation is made in a capacity other than as a broker-dealer.
Similarly, a broker-dealer may disclose that: ``All recommendations
regarding your brokerage account will be made in a broker-dealer
capacity, and all recommendations regarding your advisory account will
be in an advisory capacity. When we make a recommendation to you, we
will expressly tell you orally which account we are discussing''). In
this instance, no further disclosure of capacity is necessary.
Capacity in the Context of Names, Titles, and Marketing Practices
    The Relationship Summary Proposal included a proposed rule that
would have restricted broker-dealers and their associated persons
(unless they were registered as, or supervised persons of, an
investment adviser), when communicating with a retail investor,

from using the term ``adviser'' or ``advisor'' as part of a name or
title (``Titling Restrictions'').\323\ After further consideration of
our policy goals and the comments we received, and in light of the
disclosure requirements under Regulation Best Interest, we do not
believe that adopting a separate rule restricting these terms is
necessary, because we presume that the use of the term ``adviser'' and
``advisor'' in a name or title by (1) a broker-dealer that is not also
registered as an investment adviser or (2) an associated person that is
not also a supervised person of an investment adviser, to be a
violation of the capacity disclosure requirement under the Disclosure
Obligation as discussed further below.\324\
---------------------------------------------------------------------------

    \323\ See Relationship Summary Proposal, supra footnote 12, at
21461-63. We also requested comment on whether we should explicitly
restrict other terms, including ``wealth manager'' and ``financial
consultant.'' Additionally, we requested comment on whether we
should restrict terms that are synonymous with ``adviser'' or
``advisor.''
    \324\ We recognize that, in adopting the fee-based brokerage
rule in 2005, we declined to place any limitations on how a broker-
dealer may hold itself out or the titles it may employ. Certain
Broker-Dealers Deemed Not to Be Investment Advisers, Advisers Act
Release No. 2376 (Apr. 12, 2005). However, as we noted in the
Relationship Summary Proposal, comments we received in response to
Chairman Clayton's request for comment and our experience prompted
us to revisit our approach from 2005. In addition, given that the
new disclosure requirements under Regulation Best Interest and Form
CRS will and should necessitate a reassessment of a broker-dealer's
names, titles, and communications with its customers, we believe it
is necessary to re-evaluate the appropriateness of these practices
in light of these new obligations. See also generally Relationship
Summary Proposal, supra footnote 12, at 21459-61 (citing commenters
and studies by the Siegel and Gale Consulting Group and the RAND
Corporation that document investor confusion in the marketplace, all
of which were conducted subsequent to the 2005 fee-based brokerage
rule); Public Comments from Retail Investors and Other Interested
Parties on Standards of Conduct for Investment Advisers and Broker-
Dealers, Chairman Jay Clayton (Jun. 1, 2017), available at https://www.sec.gov/news/public-statement/statement-chairman-clayton-2017-05-31. We also proposed rules (the ``Affirmative Disclosures'') that
would have required a broker-dealer and an investment adviser to
prominently disclose that it is registered as a broker-dealer or
investment adviser, as applicable, with the Commission in print or
electronic retail investor communications. As we discuss in a
concurrent rulemaking, we are not adopting the Affirmative
Disclosures. See Relationship Summary Adopting Release, supra
footnote 12, at Section III.
---------------------------------------------------------------------------

    We received several comments on the proposed Titling Restrictions,
which we have also considered when determining to presume use of such
names and titles to be a violation of the capacity disclosure.\325\
Some commenters supported a restriction on the terms ``adviser'' and
``advisor,'' noting, for example, that these particular terms are often
associated with the statutory term ``investment adviser,'' \326\ or
that investors ``typically associate'' these terms with registered
investment advisers.\327\ A few commenters generally noted that the
title ``financial advisor'' prevents investors from understanding
whether they are engaging a financial professional who provides
advisory services or who sells brokerage services.\328\ Moreover, other
commenters generally stated that names and titles containing
``adviser'' or ``advisor'' create investor confusion and/or could
mislead investors about the differences between broker-dealers and
investment advisers including the applicable standard of care \329\ and
the services to be provided.\330\
---------------------------------------------------------------------------

    \325\ See, e.g., CFA August 2018 Letter; IAA August 2018 Letter;
LPL August 2018 Letter; Letter from Dennis M. Kelleher, President
and CEO, et al., Better Markets (Aug. 7, 2018) (``Better Markets CRS
Letter'').
    \326\ See Letter from Lexie Pankratz, Owner, Trailhead
Consulting, LLC (Aug. 7, 2018) (``Trailhead Letter'').
    \327\ See, e.g., Letter from Kurt N. Schacht, Managing Director,
et al., CFA Institute (Aug. 7, 2018) (``CFA Institute CRS Letter'');
Pickard Letter.
    \328\ See, e.g., Letter from Gerald Lopatin (Jul. 30, 2018)
(``Lopatin Letter''); Letter from Paula Hogan (Aug. 6, 2018)
(``Hogan Letter''); Letter from Arlene Moss (Jul. 31, 2018) (``Moss
Letter''); Letter from Daniel Wrenne (Jul. 31, 2018) (``Wrenne
Letter'').
    \329\ See, e.g., FSI August 2018 Letter; Schwab Letter; CFA
Institute CRS Letter; Betterment Letter.
    \330\ See, e.g., NASAA August 2018 Letter (stating that ``[t]his
rule change will help forestall retail investors' confusion about
the different roles and duties owed by broker-dealers/agents and
investment advisers/investment adviser Representatives''); CFA
Institute CRS Letter (stating that ``[i]nvestor confusion about the
roles and duties of different financial services providers who use
``adviser/advisor'' in their titles has become problematic from both
an investor protection and trust standpoint. Use of the proposed
CRS, alone, will not allay the substantial investor confusion in the
marketplace about the differences between broker-dealers and
investment advisers.'')
---------------------------------------------------------------------------

    Other commenters did not support the proposed Titling Restrictions,
believing that the terms ``adviser'' and ``advisor'' are more
generically used and understood, and refer to financial professionals
who provide advice and financial services more generally.\331\ Several
of these commenters stated that the restriction adds little additional
investor protection when taken together with Regulation Best Interest
and Form CRS (i.e., it is duplicative).\332\ Additionally, some
commenters stated that Form CRS alone provides similar investor
protections that alleviate the need for the restriction.\333\ Along
similar lines, one commenter stated that certain fraud-based securities
laws and FINRA rules provide the same protections that the proposed
restriction seeks to add, making it unnecessary.\334\
---------------------------------------------------------------------------

    \331\ See LPL August 2018 Letter (stating that ``restricting use
of `advisor' and `adviser' is contrary to the plain English meaning
the average investor associates with those terms . . . regardless of
the legal contours of the service relationship.''); NAIFA Letter
(stating that ``[m]any financial professionals are recognized as
and/or refer to themselves as `advisors/advisers' or `financial
advisors/advisers.' These words are (aptly) used by professionals
who offer advice on any number of financial topics.''); Letter from
Investments & Wealth Institute (``IWI'') (Aug. 6, 2018) (``IWI
August 2018 Letter'') (stating that an outright ban on the use of
the terms ``adviser'' and ``advisor'' by broker-dealers would raise
First Amendment concerns).
    \332\ See, e.g., Letter from Robert D. Oros, Chief Executive
Officer, HD Vest Financial Services (Aug. 7, 2018) (``HD Vest
Letter''); LPL August 2018 Letter; SIFMA August 2018 Letter. But see
Pickard Letter (supporting the restriction and our proposed
alternative holding out approach by noting that ``[w]e do not think
that Reg BI or Form CRS as currently proposed is sufficient.'')
    \333\ See, e.g., LPL August 2018 Letter; Morgan Stanley Letter;
Raymond James Letter.
    \334\ See Cambridge Letter.
---------------------------------------------------------------------------

    We also received several comments on the following alternative
approaches to the Titling Restrictions on which we sought comment: (i)
A broker-dealer that used the terms ``adviser'' or ``advisor'' as part
of a name or title would not be considered to provide investment advice
solely incidental to the conduct of its business as a broker-dealer,
and (ii) a broker-dealer would not be providing investment advice
solely incidental to its brokerage business if it ``held itself out''
as an investment adviser to retail investors.\335\ This second
alternative approach would have resulted in a restriction generally
broader in scope than the Titling Restrictions, as it would also have
encompassed communications and sales practices in addition to the use
of names and titles.
---------------------------------------------------------------------------

    \335\ See Relationship Summary Proposal, supra footnote 12, at
21463-64. We are not adopting the proposed alternative approach that
would have restricted a broker-dealer from availing itself of the
solely incidental exclusion if it ``held itself out'' as an
investment adviser. Use of the terms ``adviser'' or ``advisor,''
however, could support a conclusion depending on other facts and
circumstances, that the primary business of the firm is advisory in
nature, in which case the advice provided by the broker-dealer would
not be solely incidental to the conduct of its brokerage business.
See Solely Incidental Interpretation, supra footnote 12, at Section
II.B (providing the Commission's interpretation of the solely
incidental prong of the broker-dealer exclusion from the Advisers
Act).
---------------------------------------------------------------------------

    In response to these alternatives, several commenters stated that
the Titling Restrictions were too narrow in meeting the Commission's
intended objective of mitigating the risk that investors could be
misled by the use of certain names and titles because the Titling
Restrictions did not address other confusing names or titles,\336\ and,

more specifically, because the Titling Restrictions did not address the
broker-dealers who ``hold themselves out'' as investment advisers.\337\
Several of these commenters instead advocated for precluding reliance
on the solely incidental prong by any broker-dealer that holds itself
out as an investment adviser.\338\ Some commenters stated that certain
marketing practices indicate that advice is the main function of the
broker-dealer's service.\339\ Additionally, one commenter stated that
``the potential for investor confusion is at its greatest when dealing
with broker-dealers and dual-registrants that routinely market their
services as advisory in nature. . . .'' \340\
---------------------------------------------------------------------------

    \336\ See e.g., Letter from Barbara Roper, Director of Investor
Protection, and Micah Hauptman, Financial Services Counsel, (Dec. 7,
2018) (``CFA December 2018 Letter''); State Treasurers Letter;
Waters Letter (noting that the Titling Restrictions are too narrow
of a fix for investor confusion because they fail ``to address the
numerous other titles professionals use. . . . As a result, most
retail investors cannot easily distinguish between financial
advisers who are mere salespeople and those that are investment
advisers that must provide advice that is in the best interests of
the investor.''). See also NAIFA Letter (noting that restricting
these terms for broker-dealers and their financial professionals
only ``and not for numerous other professionals using those words
and delivering advice on a wide variety of financial topics creates
more consumer confusion and does not enhance consumers'
understanding of the specific obligations and standards that apply
to their advisor(s).'')
     Additionally, several of the commenters who supported the
restriction recommended modifications such as broadening the
restriction to include other terms, including ``wealth manager'' and
``financial consultant.'' See, e.g., Financial Engines Letter;
Comment Letter of Altruist Financial Advisors LLC (Aug. 7, 2018)
(``Altruist Letter''); Letter from David John Marotta (April 22,
2018) (``Marotta Letter''); Galvin Letter; Letter from Pamela Banks,
Senior Policy Counsel, Consumers Union (Oct. 19, 2018) (``Consumers
Union Letter'').
    \337\ See, e.g., CFA August 2018 Letter; FPC Letter; IAA August
2018 Letter; Letter from Michael Kitces (Aug. 2, 2018) (``Kitces
Letter''); LPL August 2018 Letter; MarketCounsel Letter; Waters
Letter.
    \338\ See, e.g., IAA August 2018 Letter (noting that ``[w]hile
names or titles are contributing factors to investor confusion and
the potential for investors to be misled, we believe that other
factors should be considered as well. In particular, previous
studies noted the confusion arising from `we do it all'
advertisements and `marketing efforts which depicted an ongoing
relationship between the broker-dealer and the investor.' '');
Betterment Letter; CFA August 2018 Letter; LPL August 2018 Letter.
    \339\ See CFA August 2018 Letter (citing to Micah Hauptman and
Barbara Roper, Financial Advisor or Investment Salesperson? Brokers
and Insurers Want to Have it Both Ways, January 18, 2017). See also
Better Markets CRS Letter (stating that titles present a
professional as not ``only an expert in financial matters but also
someone who will offer advice and recommendations''); Letter from
Michael Palumbo (Aug. 7, 2018) (``Palumbo Letter''); Kitces Letter.
    \340\ See CFA August 2018 Letter. See also CFA Institute CRS
Letter (stating that the proposal should address ``those who may not
expressly refer to themselves as `adviser/[advis]or' but through
their actions convey that meaning to investors. . . .'').
---------------------------------------------------------------------------

Use of Terms ``Adviser'' or ``Advisor''
    Financial firms and their professionals, including broker-dealers
and investment advisers, seek to acquire new customers and to retain
existing customers by marketing their services, including through the
use of particular terms in names and titles. Firms often spend time and
money to market, brand, and create intellectual property by using these
terms in an effort to shape investor expectations.\341\ A name or title
is generally used, and is designed to have significance, on its own
without any additional context as to what it means. Given that the
titles ``adviser'' and ``advisor'' are closely related to the statutory
term ``investment adviser,'' their use by broker-dealers can have the
effect of erroneously conveying to investors that they are regulated as
investment advisers, and have the business model, including the
services and fee structures, of an investment adviser.\342\ Such
potential effect undermines the objective of the capacity disclosure
requirement under Regulation Best Interest to enable a retail customer
to more easily identify and understand their relationship.
---------------------------------------------------------------------------

    \341\ See, e.g., Letter from Barbara Roper, Director of Investor
Protection, and Micah Hauptman, Financial Services Counsel, CFA
(Sep. 14, 2017) (``CFA September 2017 Letter'') (``[O]ur study
documents how everything from the titles brokers use to the way they
describe their services is designed to send the message that they
are in the business of `providing expert investment advice,
comprehensive financial planning, and retirement planning that is
based on their clients' needs and goals and that is designed to
serve their best interests.' '')
    \342\ See Relationship Summary Proposal, supra footnote 12, at
21461.
---------------------------------------------------------------------------

    As discussed above, the Disclosure Obligation requires broker-
dealers to make full and fair disclosure of all material facts relating
to the scope and terms of the relationship with a retail customer,
including the capacity in which they are acting with respect to a
recommendation. The capacity disclosure requirement is designed to
improve awareness among retail customers of the capacity in which their
firm and/or financial professional acts when it makes recommendations
so that a retail customer can more easily identify and understand their
relationship.\343\ We believe that in most cases broker-dealers and
their financial professionals cannot comply with the capacity
disclosure requirement by disclosing that they are a broker-dealer
while calling themselves an ``adviser'' or ``advisor.'' Under the
Disclosure Obligation, a broker-dealer, or an associated person, must,
prior to or at the time of the recommendation, disclose that the
broker-dealer or that associated person is acting as a broker or dealer
with respect to the recommendation.\344\ When a broker-dealer or an
associated person uses the name or title ``adviser'' or ``advisor''
there are few circumstances \345\ in which that broker-dealer or
associated person would not violate the capacity disclosure requirement
because the name or title directly conflicts with the information that
the firm or professional would be acting in a broker-dealer
capacity.\346\ Therefore, use of the titles ``adviser'' and ``advisor''
by broker-dealers and their financial professionals would undermine the
objectives of the capacity disclosure requirement by potentially
confusing a retail customer as to type of firm and/or professional they
are engaging, particularly since ``investment adviser'' is defined by
statute separately from ``broker'' or ``dealer.''
---------------------------------------------------------------------------

    \343\ Similarly, Form CRS is designed to reduce retail investor
confusion in the marketplace for brokerage and investment advisory
services and to assist retail investors with the process of deciding
whether to engage, or to continue to engage, a particular firm or
financial professional and whether to establish, or to continue to
maintain, an investment advisory or brokerage relationship. A
broker-dealer firm or financial professional's use of ``adviser'' or
``advisor'' in its name or title would inhibit a customer's full
understanding of the contours of his or her relationship with the
firm and financial professional, undermining Form CRS.
    \344\ See Rule 15l-1(a)(2)(i)(A)(i).
    \345\ See infra footnotes 349-351 and accompanying text.
    \346\ In the Relationship Summary Proposal, we stated that our
proposed restriction on the terms ``adviser'' and ``advisor'' would
not have applied to broker-dealers when communicating with
institutions. See Relationship Summary Proposal, supra footnote 12,
at 21462. Given that Regulation Best Interest and the Relationship
Summary apply only to retail customers and retail investors,
respectively, our presumption would only apply to the use of
``adviser'' and ``advisor'' in such contexts. Therefore, we do not
believe that further clarification of communications by non-retail
focused broker-dealers is necessary.
---------------------------------------------------------------------------

    As a result,\347\ we presume that the use of the terms ``adviser''
and ``advisor'' in a name or title by (i) a broker-dealer that is not
also registered as an investment adviser or (ii) an associated person
that is not also a supervised person of an investment adviser to be a
violation of the capacity disclosure requirement under Regulation Best
Interest.\348\
---------------------------------------------------------------------------

    \347\ Specifically, in the Proposing Release we stated that a
standalone broker-dealer would satisfy the capacity disclosure by
complying with the proposed Relationship Summary and Affirmative
Disclosure requirements. We provided this proposed guidance in the
context of concurrently proposing the Titling Restrictions. For the
reasons discussed herein, we believe a presumption against the use
of these titles by standalone broker-dealers is more appropriate
than a restriction.
    \348\ If a financial professional is a registered representative
of a broker-dealer that is a dual-registrant but the professional is
not also a supervised person of an investment adviser, this
professional would similarly be presumptively in violation of the
capacity disclosure requirement if the financial professional uses
the title ``adviser'' or ``advisor.'' However, this financial
professional may continue to use either the dual-registrant's
materials or may use the firm's name in the financial professional's
communications even if the firm's name includes the title
``adviser'' or ``advisor'' because such firm is dually registered as
an investment adviser and broker-dealer and is not presumptively
violating the capacity disclosure requirement under Regulation Best
Interest. Moreover, we believe it would be consistent for dual-
registrants and dually registered financial professionals to use
these terms as they would be accurately describing their
registration status as an investment adviser.

---------------------------------------------------------------------------

    Although using these names or titles creates a presumption of a
violation of the Disclosure Obligation in Regulation Best Interest, we
are not expressly prohibiting the use of these names and titles by
broker-dealers because we recognize that some broker-dealers use them
to reflect a business of providing advice other than investment advice
to retail clients. A clear example is a broker-dealer (or associated
person) that acts on behalf of a municipal advisor \349\ or commodity
trading adviser,\350\ or as an advisor to a special entity,\351\ as
these are distinct advisory roles specifically defined by federal
statute that do not entail providing investment advisory services. We
also recognize that a broker-dealer may provide advice in other
capacities outside the context of investment advice to a retail
customer that would present a similarly compelling claim to the use of
these terms. In these circumstances, firms and their financial
professionals may in their discretion use the terms ``adviser'' or
``advisor.'' \352\ In most instances, however, when a broker-dealer
uses these terms in its name or title in the context of providing
investment advice to a retail customer, they will generally violate the
capacity disclosure requirement under Regulation Best Interest.
---------------------------------------------------------------------------

    \349\ 15 U.S.C. 78o-4(e)(4).
    \350\ 15 U.S.C. 80b-2(a)(29).
    \351\ 15 U.S.C. 78o-8(h)(2)(A).
    \352\ Some commenters raised concerns that the proposed
restriction would not permit financial professionals to indicate
that they maintain particular certifications that include in the
name or title ``adviser'' or ``advisor.'' See, e.g., IWI August 2018
Letter; Letter from IWI (Oct. 9, 2018) (``IWI October 2018
Letter''). Cf. Letter from John Robinson (Aug. 6, 2018) (``Robinson
Letter'') (suggesting that the Commission limit the use of the term
``financial planner'' to investment adviser representatives); FPC
Letter (suggesting that the Commission clarify which certifications
or professional designations may be used for financial planners). We
recognize that these designations are intended to convey adherence
to particular standards that financial professionals have met.
However, these designations are not rooted in any statutory
construct (as are the titles ``commodity trading advisor'' and
``municipal advisor'') and given that the terms ``adviser'' and
``advisor'' are still associated with the statutory term
``investment adviser,'' even if used in a designation, a broker-
dealer or associated person that uses these designations would
similarly be in presumptive violation of the capacity disclosure
requirement in Regulation Best Interest.
---------------------------------------------------------------------------

Marketing Communications
    As discussed above, several commenters on the Titling Restrictions
raised concerns that restricting the use of names and titles would be
insufficient to address what they viewed as the larger issue of broker-
dealer marketing communications where a broker-dealer and/or its
financial professional appears to be holding itself out as an
investment adviser. Marketing communications provide additional context
to investors and are designed to persuade potential customers to obtain
and pay for the firm's services and products.\353\ They communicate to
customers what services firms understand themselves to be providing--
including, for broker-dealers, recommendations in connection with and
reasonably related to effecting securities transactions.
---------------------------------------------------------------------------

    \353\ Affiliated firms may market advisory and brokerage
services in a single set of communications. A dually registered firm
also may seek to market the primary services provided by its
advisory and brokerage business lines in a single set of
communications. We believe this combined approach to providing
customers with information about investment services enhances
customer choice, and we understand that many such firms market in
this way in an effort to provide a comprehensive picture of the
firm's services.
     See also Instructions to Form CRS, General Instruction 5.
(Encouraging dual-registrants to prepare one relationship summary
discussing both its brokerage and investment advisory services, but
stating that they may prepare two separate relationship summaries
for brokerage services and investment advisory services. Whether the
firm prepares one relationship summary or two, the firm must present
the brokerage and investment advisory information with equal
prominence and in a manner that clearly distinguishes and
facilitates comparison of the two types of services.).
---------------------------------------------------------------------------

    The way in which a broker-dealer markets itself may have regulatory
consequences. As noted above, Form CRS requires, among other items,
broker-dealers (and investment advisers) to state clearly key facts
about their relationship, including their registration status and the
services they provide.\354\ Broker-dealers (and investment advisers)
will also be required through Form CRS to provide information to assist
retail investors in deciding whether to engage in an investment
advisory or brokerage relationship.\355\ Additionally and as discussed
above, we are adopting the capacity disclosure requirement under
Regulation Best Interest, which requires broker-dealers and their
financial professionals to affirmatively disclose the capacity (e.g.,
brokerage) in which they are acting with respect to their
recommendations.\356\ These obligations are designed to improve
awareness among retail customers of the capacity in which their firm or
financial professional acts when it makes recommendations so that the
retail customer can more easily identify and understand their
relationship.
---------------------------------------------------------------------------

    \354\ See Relationship Summary Adopting Release, supra footnote
12.
    \355\ Id.
    \356\ See Rule 15l-1(a)(2)(i)(A)(i).
---------------------------------------------------------------------------

    As noted above, we are not adopting the Commission's proposed
alternative holding out approach that would have addressed broker-
dealer marketing communications through the lens of the solely
incidental exclusion.\357\ However, under our interpretation of the
solely incidental prong of the broker-dealer exclusion from the
definition of investment adviser, a broker-dealer's investment advisory
services do not fall within that prong if the broker-dealer's primary
business is giving investment advice or if its investment advisory
services are not offered in connection with and are not reasonably
related to the broker-dealer's business of effecting securities
transactions.\358\ By more clearly delineating when a broker-dealer's
performance of advisory activities renders it an investment adviser,
this interpretation provides guidance that may be informative to
broker-dealers when designing marketing communications that accurately
reflect their activities.
---------------------------------------------------------------------------

    \357\ See supra footnote 335 and accompanying text.
    \358\ See Solely Incidental Interpretation, supra footnote 12,
Section II.B (providing the Commission's interpretation of the
solely incidental prong of the broker-dealer exclusion from the
Advisers Act.)
---------------------------------------------------------------------------

    Broker-dealers, dual-registrants, and affiliated broker-dealers of
investment advisers that market their services together should consider
whether modifications are needed in their marketing communications in
light of these new obligations. As we noted in the Relationship Summary
Proposal, broker-dealers can, and do, provide investment advice so long
as such advice comports with the broker-dealer exclusion under Advisers
Act section 202(a)(11)(C). While broker-dealers and their financial
professionals may state that they provide ``advice'' in their marketing
communications, those and other statements should not be made in a
manner that contradicts the disclosures made pursuant to Regulation
Best Interest and Form CRS, and should be reviewed in light of the
Solely Incidental Interpretation.\359\ We believe that the combination
of new disclosure obligations and requirements and firms'
implementation of these new obligations will appropriately address
commenters' concerns regarding broker-dealers that hold themselves out
as

investment advisers, particularly those who can change capacities when
serving retail investors in a dual capacity.\360\
---------------------------------------------------------------------------

    \359\ See Relationship Summary Proposal, supra footnote 12, at
21461.
    \360\ See, e.g., IAA August 2018 Letter; FPC Letter; Better
Markets CRS Letter.
---------------------------------------------------------------------------

    In addition to these new obligations, FINRA Rule 2210 (regarding
its members' communications with the public) is designed to ensure that
broker-dealer communications with the public are fair, balanced, and
not misleading.\361\ This rule includes general standards, such as a
requirement to not make any false or misleading statements, and
specific content standards, such as requirements on how to disclose the
broker-dealer's name in marketing communications.\362\ Accordingly, we
anticipate that FINRA will be reviewing the application of these rules
in light of these new disclosure obligations. The Commission staff also
will evaluate broker-dealer marketing communications to consider
whether additional measures may be necessary.
---------------------------------------------------------------------------

    \361\ See FINRA Rule 2210.
    Additionally, broker-dealers and their financial professionals
should keep in mind the applicability of the antifraud provisions of
the federal securities laws, including section 17(a) of the
Securities Act, and Exchange Act Section 10(b) and Rule 10b-5
thereunder, to their marketing practices.
    \362\ See, e.g., FINRA Rule 2210(d)(1) and (d)(3).
---------------------------------------------------------------------------

Fees and Costs
    In the Proposing Release, we stated that fees and charges
applicable to the retail customer's transactions, holdings, and
accounts would also be examples of ``material facts relating to the
terms and scope of the relationship'' \363\ As such, these fees and
charges would generally have needed to be disclosed in writing prior
to, or at the time of, the recommendation. While we did not propose to
mandate the form, specific content, or method for delivering fee
disclosure, we stated that we would generally expect that, to meet the
Disclosure Obligation, broker-dealers would build upon the proposed
Relationship Summary by disclosing, among other things, additional
detail regarding the types of fees and charges described in the
proposed Relationship Summary.\364\
---------------------------------------------------------------------------

    \363\ See Proposing Release at 21601.
    \364\ See Proposing Release at 21600.
---------------------------------------------------------------------------

    We received a number of comments on the proposed Disclosure
Obligation relating to fees and charges. As discussed in more detail in
the relevant sections below, these comments generally sought clarity on
the scope of fees and charges to be disclosed, including the
particularity of the fees and charges to be disclosed (i.e., whether
standardized or individualized disclosure would be required). In
consideration of the comments received, and in light of the obligations
being imposed by the Relationship Summary, we are revising Regulation
Best Interest to explicitly require the disclosure of fees and costs,
and are providing additional clarifying guidance. In addition, we are
revising the Regulation Best Interest rule text to refer to ``fees and
costs'' instead of ``fees and charges,'' consistent with the approach
taken in the Relationship Summary. Specifically, we are revising the
Disclosure Obligation to require disclosure of ``all material facts
relating to the scope and terms of the relationship with the retail
customer, including [. . .] the material fees and costs that apply to
the retail customer's transactions, holdings and accounts.'' \365\
---------------------------------------------------------------------------

    \365\ Rule 15l-1(a)(2)(i)(A)(ii).
---------------------------------------------------------------------------

    We are also providing additional guidance addressing the scope of
fees and costs to be disclosed. Namely, the Disclosure Obligation
requires disclosure of material fees and costs relating to the retail
customer's transactions, holdings and accounts. This obligation would
not require individualized disclosure for each retail customer. Rather,
the use of standardized numerical and other non-individualized
disclosure (e.g., reasonable dollar or percentages ranges) is
permissible, as discussed below.\366\
---------------------------------------------------------------------------

    \366\ See Section II.C.1.a, Disclosure Obligation, Fees and
Costs, Particularity of Fees and Costs Disclosed; Individualized
Disclosure.
---------------------------------------------------------------------------

Scope of Fees and Costs To Be Disclosed
    Several commenters asked for clarification about whether all fees
and charges must be disclosed, or only those that are ``material.''
\367\ In response, we are revising Regulation Best Interest to make
explicit that a material fact regarding the scope and terms of the
relationship includes material fees and costs that apply to the retail
customer's transactions, holdings and accounts. As noted above, the
standard for materiality for purposes of the Disclosure Obligation is
consistent with the one the Supreme Court articulated in Basic v.
Levinson; fees and costs are material and must be disclosed, if there
is ``a substantial likelihood that a reasonable shareholder would
consider it important.'' \368\ As noted above, in the context of this
Regulation Best Interest, the standard of materiality is based on the
retail customer, as defined in the rule.
---------------------------------------------------------------------------

    \367\ See, e.g., Bank of America Letter (recommending that the
Commission: (i) Provide greater specificity regarding the fees to be
disclosed under Regulation Best Interest, and (ii) apply a
``materiality'' threshold to those fees).
    \368\ Basic, Inc. v. Levinson, 485 U.S. 224, 224 (1988).
---------------------------------------------------------------------------

    We would generally expect that, to satisfy the Disclosure
Obligation, broker-dealers would build upon the material fees and costs
identified in the Relationship Summary, providing additional detail as
appropriate. These descriptions could include, for example, an
explanation of how and when the fees are deducted from the customer's
account (e.g., such as on a per-transaction basis or quarterly).
Although the fees and costs identified in the Relationship Summary may
provide a useful starting point for the identification of the material
fees and costs that may be disclosed pursuant to the Disclosure
Obligation, there may be other categories of fees and costs that are
material under the facts and circumstances of a broker-dealer's
business model that must be disclosed pursuant to the Disclosure
Obligation.
Particularity of Fees and Costs Disclosed; Individualized Disclosure
    Several commenters recommended that the Commission not require that
broker-dealers provide individualized fee disclosures to retail
customers. Specifically, they recommended that the Commission clarify
that broker-dealers could meet the Disclosure Obligation if they
provide a range of fees and costs or use standardized and hypothetical
amounts rather than requiring disclosure of actual dollar amounts based
on proposed amounts to be invested (i.e., individualized fees).\369\
These commenters cited concerns about cost and practicality associated
with generating individualized disclosures.\370\ With regard to
product-level fees in particular, several commenters expressed concern
that

broker-dealers could not easily calculate individualized fees and
charges associated with the securities about which they provide
recommendations and that doing so might lead to inadvertently providing
inconsistent or inaccurate fee estimates to their retail
customers.\371\ In this vein, several commenters recommended that
broker-dealers should be able to satisfy the Disclosure Obligation
regarding product-level fees by providing retail customers with or
referring them to an issuer's offering materials, such as a
prospectus.\372\ Other commenters, on the other hand, stated that the
Commission should not allow the use of percentages or ranges because
such a presentation does not adequately inform investors of the fees
and charges they will incur.\373\
---------------------------------------------------------------------------

    \369\ See, e.g., Vanguard Letter (recommending that the
Disclosure Obligation could be satisfied by relaying the types and
ranges of costs associated with a recommendation, or by using
standardized and hypothetical investments, rather than requiring
computation of actual dollar amounts based on proposed amounts to be
invested); Capital Group Letter (stating that customized mutual fund
fee and expense disclosures for investors at the time of the
recommendation would be impractical); SIFMA August 2018
(recommending the Commission permit disclosure of a range of
customer costs per product); NASAA August 2018 Letter (suggesting
that the Commission mandate its Model Fee Table along with
disclosure of other fees paid for services and any other third party
remuneration).
    \370\ See, e.g., TIAA Letter (stating that broker-dealers would
need to expend significant resources to build new systems and new
compliance programs in order to provide individualized fee
disclosure); ICI Letter (recommending that the Commission confirm
that the Disclosure Obligation would not require a broker-dealer to
separately calculate fund fees and expenses); Capital Group Letter
(stating that individualized disclosures raise significant
operational burdens and compliance issues in exchange for, at best,
inconsistent utility).
    \371\ See, e.g., TIAA Letter (stating that calculating
individualized fee information for any retail customer would be
difficult and might lead to inadvertently providing inconsistent or
inaccurate fee estimate); Capital Group Letter.
    \372\ See TIAA Letter (stating that broker-dealers should not be
obligated to provide fund-level fee disclosure outside of a fund
prospectus or to provide individualized fee disclosure to retail
customers); ICI Letter (stating that when making a recommendation of
a fund, a broker-dealer should be permitted to direct customers to
the fund's prospectus as the source of information about fund fees
and expenses); Oppenheimer Letter (stating that the fund, not the
broker-dealer, is in a better position to provide these disclosures,
in a manner that is accurate, consistent and complete).
    \373\ See, e.g., CFA August 2018 Letter (stating that the
Commission should not allow for percentages or ranges because it
would do little to inform investors); PIABA Letter (stating that
broker-dealers should disclose the specific charges that their
customers will incur as a result of the particular recommendation);
UMiami Letter (stating that customers should be provided with clear
and concise information that fully and fairly discloses the specific
charges the customer will incur as a result of a particular
recommendation).
---------------------------------------------------------------------------

    As adopted, the Disclosure Obligation does not mandate
individualized fee disclosure particular to each retail customer.
Instead, broker-dealers may disclose ``material facts'' about material
fees and costs in terms of more standardized numerical and narrative
disclosures, such as standardized or hypothetical amounts, dollar or
percentage ranges, and explanatory text where appropriate. The
disclosure should accurately convey why a fee is being imposed and when
the fee is to be charged. Further, as discussed below,\374\ a broker-
dealer will need to supplement this standardized disclosure with more
particularized information if the broker-dealer concludes that such
information is necessary to fully and fairly disclose the material
facts associated with the fee or charge. For example, a broker-dealer
might initially disclose a range of product fees, and later supplement
that information with more particularized information by delivering the
product prospectus.\375\
---------------------------------------------------------------------------

    \374\ See Section II.C.1.c, Disclosure Obligation, Full and Fair
Disclosure, Layered Disclosure.
    \375\ See supra footnote 302.
---------------------------------------------------------------------------

    Consistent with this approach, and also in response to comments, we
are further clarifying that a broker-dealer recommending a securities
transaction or an investment strategy involving securities can meet the
Disclosure Obligation regarding fees and costs assessed at the product
level by describing those fees and costs in initial, standardized terms
and providing subsequent particularized disclosure as necessary. To the
extent that such subsequent information regarding product-level fees
and costs appears in a currently mandated disclosure document, such as
a trade confirmation or a prospectus, delivery of that information in
accordance with existing regulatory obligations will be deemed to
satisfy the Disclosure Obligation, even if delivery occurs after the
recommendation is made, under the circumstances outlined in Section
II.C.1. Although it is not required by Regulation Best Interest,
broker-dealers may refer the customer to any issuer disclosure of the
security being recommended, such as a prospectus, private placement
memorandum, or offering circular, where more particular information may
be found.
    We acknowledge that the desire for greater fee transparency was a
consistent theme of our investor engagement and we believe that the
Disclosure Obligation, in conjunction with the Relationship Summary,
significantly advances that goal. Individualized fee disclosure may be
helpful to some retail customers, but it can also be costly, prone to
errors, and cause delays in trade execution. In addition, in some cases
the precise amount of the fee may be based on the dollar value of the
transaction, and would not be known prior to or at the time of the
recommendation, meaning that it could only be expressed in more general
terms, such as a percentage value or range, as an initial matter. We
believe that adopting the Disclosure Obligation that allows for the use
of standardized disclosure furthers our goal of informing investors
about fees and costs by the time of a recommendation in a workable
manner. Nothing in Regulation Best Interest prevents a broker-dealer
from providing such individualized disclosure to its customers should
it wish to do so, and we encourage firms to assist retail customers in
understanding the specific fees and costs that apply, and to provide
more individualized disclosure where appropriate, or in response to a
retail customer's request. As a best practice, firms may also consider
reviewing with their retail customers the effect of fees and costs on
the retail customer's account(s) on a periodic basis.\376\ The costs,
errors, delays, and other practical obstacles to individualized fee
disclosure are likely to fall over time. We will continue to consider
whether to require more personalized fee disclosure, particularly as
technology evolves to address operational and technological costs.
---------------------------------------------------------------------------

    \376\ Although we encourage firms to have this conversation with
their retail customers, we are not suggesting that engaging in such
a best practice would, by itself, create any implied or explicit
obligation to monitor such fees and costs.
---------------------------------------------------------------------------

    With regard to the disclosure of product-level fees in particular,
while we support the goal of bringing greater transparency to all fees
incurred, we are seeking to supplement, not supplant, the existing
regulatory regime currently applicable to product-level fees with the
adoption of Regulation Best Interest. We acknowledge that if a broker-
dealer highlights such fees with particularity, it may raise a
customer's awareness of them, and we encourage as a best practice that
broker-dealers do so.\377\ We acknowledge also that the nature and
extent of product-level disclosures may vary. However, we do not
believe that requiring broker-dealers to deliver product disclosures
earlier than is currently required, to generate fee disclosure not
currently required of issuers, or to recalculate or highlight specific
product-level fees already disclosed in an issuer's offering materials
will meaningfully improve fee disclosure and it may, in fact, be unduly
burdensome and raise the possibility of errors if broker-dealers were
to be obligated to project or calculate product fees based on product
issuer information. Accordingly, we believe that allowing broker-
dealers to meet the Disclosure Obligation with regard to product-level
fees by describing those fees in standardized terms with further
detailed, particularized information related to the recommendation
provided either prior to or at the time of the recommendation or
afterwards under the circumstances outlined in Section II.C.1, Oral
Disclosure or Disclosure After a Recommendation, strikes an

appropriate balance between costs to firms and benefits to retail
customers.\378\
---------------------------------------------------------------------------

    \377\ With regard to product-level fees, in particular, broker-
dealers may wish to highlight certain categories of fees such as
distribution fees, platform fees, shareholder servicing fees and
sub-transfer agency fees, in order to enhance retail customers'
understanding of these fees to the extent applicable to the
customer's transactions, holdings, and accounts.
    \378\ See Section II.C.1, Disclosure Obligation, Oral Disclosure
or Disclosure After a Recommendation.
---------------------------------------------------------------------------

    We believe this approach is bolstered by the existence of
complementary obligations protective of retail customers that are
imposed by Regulation Best Interest. For example, to the extent fees
and costs incurred related to these products create conflicts of
interest associated with a recommendation, we believe they are
appropriately highlighted and addressed in the context of the conflicts
and incentives they create to make a recommendation, and must be
addressed as part of the obligation to disclose material facts about
conflicts of interest associated with a recommendation, as discussed
below.\379\
---------------------------------------------------------------------------

    \379\ See Section II.C.1.b, Disclosure Obligation, Material
Facts Regarding Conflicts of Interest.
---------------------------------------------------------------------------

    Moreover, under the Care Obligation, a broker-dealer recommending a
securities transaction or investment strategy involving securities to a
retail customer must consider costs associated with that recommendation
when determining whether it is in the best interest of that retail
customer. As a result, disclosure of product-level fees and costs to
satisfy the Disclosure Obligation will be supplemented by other aspects
of Regulation Best Interest.
    While the Disclosure Obligation provides broker-dealers with
flexibility in describing the material fees and costs that apply, the
disclosure should accurately convey why the fee or charge is being
imposed and when the fee or charge is to be assessed. For example,
describing a commission or markup as a fee for ``handling services''
could inappropriately disguise the fee's true nature. Furthermore,
while using a percentage or dollar range to describe a fee can be
appropriate, that range should be designed to reasonably reflect the
actual fee to be charged. For example, a statement that a charge may be
``between 5 and 100 basis points'' would not be accurate if the fee is
in almost all instances between 85 and 100 basis points. However, in
this case, a broker-dealer could accurately describe the fee, for
example, as ``generally being between 85 and 100 basis points,
sometimes lower, but never above.'' In some cases, actual dollar values
based on a hypothetical transaction may facilitate customer
understanding.
    A material fact about fees and costs could also include informing a
retail customer of a fee's triggering event, such as a fee imposed
because an account minimum falls below a threshold and whether fees are
negotiable or waivable.
Type and Scope of Services Provided
    In the Proposing Release, we provided guidance that the type and
scope of services a broker-dealer provides its retail customers would
also be an example of what typically would be ``material facts relating
to the terms and scope of the relationship,'' that would require
disclosure pursuant to the Disclosure Obligation.\380\ Specifically, we
stated that broker-dealers should build upon their disclosure in the
Relationship Summary, and provide additional information regarding the
types of services that will be provided as part of the relationship
with the retail customer and the scope of those services.\381\
---------------------------------------------------------------------------

    \380\ See Proposing Release at 21602.
    \381\ Id.
---------------------------------------------------------------------------

    In particular, we noted that under proposed Form CRS broker-dealers
would provide high-level disclosures concerning services offered to
retail investors, including, for example, recommendations of
securities, assistance with developing or executing an investment
strategy, monitoring the performance of the retail investor's account,
regular communications, and limitations on selections of products.\382\
We recognized that a broker-dealer that offers different account types,
or offers varying additional services to the retail customer may not be
able, within the content and space constraints of the Relationship
Summary, to provide ``all material facts relating to the scope and
terms of the relationship'' with the retail customer.\383\ Thus, we
stated that pursuant to the proposed Disclosure Obligation, we would
have generally expected broker-dealers to disclose these types of
material facts concerning the actual services offered as part of the
relationship with the retail customer separately from the Relationship
Summary.
---------------------------------------------------------------------------

    \382\ See Relationship Summary Proposing Release at 31426.
    \383\ See Section II.C.1.a, Disclosure Obligation, Standard of
Conduct.
---------------------------------------------------------------------------

    Commenters generally agreed that it was important for broker-
dealers to disclose to their customers material facts about the type
and scope of services they provide to their customers.\384\ However,
commenters sought clarity regarding the application of this proposed
guidance, and raised questions about whether firms would be
specifically required to disclose certain services (e.g., monitoring
account performance and providing financial education) pursuant to
Regulation Best Interest,\385\ as discussed below, and the level of
disclosure required under Regulation Best Interest.\386\
---------------------------------------------------------------------------

    \384\ See, e.g., Pacific Life August 2018 Letter; Cetera August
2018 Letter.
    \385\ See, e.g., Betterment Letter (recommending that the
Commission ensure that dual-registrants communicate which of their
services are advisory in nature); Northwestern Mutual Letter.
    \386\ See, e.g., Cetera August 2018 Letter (stating that a best
interest standard should include a requirement to deliver a summary
description of the relationship between the firm and customer,
including the scope of services); Committee of Annuity Insurers
Letter (recommending the Commission clarify that a broker-dealer
could satisfy the Disclosure Obligation by disclosing the products
and services available to its retail customers and does not need to
disclose information particularized to a recommendation).
---------------------------------------------------------------------------

    Consistent with our approach in the Proposing Release, we continue
to believe that the type and scope of services a broker-dealer provides
to its retail customers are ``material facts relating to the scope and
terms of the relationship.'' Accordingly, we are revising the rule text
to explicitly require the disclosure of the ``type and scope of
services provided to the retail customer, including any material
limitations on the securities or investment strategies involving
securities that may be recommended to the retail customer,'' as part of
the ``material facts relating to the scope and terms of the
relationship'' that must be disclosed pursuant to the Disclosure
Obligation.\387\
---------------------------------------------------------------------------

    \387\ Rule 15l-1(a)(2)(i)(A)(iii).
---------------------------------------------------------------------------

    We are interpreting the Disclosure Obligation to only require
disclosure of material facts relating to the type of services provided
(e.g., the fact that the broker-dealer monitors securities transactions
and investment strategies) and the scope of services (e.g., information
about the frequency and duration of the services). In response to
comments, we are also specifically addressing the disclosure of
information regarding whether or not the broker-dealer provides account
monitoring services and whether the broker-dealer has account minimums
or similar requirements.
    In addition, in response to comments, we are clarifying that
pursuant to the Disclosure Obligation, broker-dealers need to disclose
only material information relating to the ``type and scope of services
provided.'' As discussed in the context of the disclosure of fees and
costs above, the standard for materiality of the type and scope of
services to be disclosed is consistent with the standard articulated in
Basic v. Levinson: Information related to the type and scope of
services provided is material, and must be disclosed, if there is ``a
substantial likelihood that a reasonable shareholder

would consider it important.'' \388\ As noted above, in the context of
Regulation Best Interest, this standard would apply in the context of
retail customers, as defined.
---------------------------------------------------------------------------

    \388\ Basic, Inc. v. Levinson, 485 U.S. 224, 224 (1988).
---------------------------------------------------------------------------

    We believe the information included in the Relationship Summary may
provide a useful starting point for the identification of the type and
scope of services that must be disclosed pursuant to the Disclosure
Obligation. For example, in the Relationship Summary a broker-dealer
must describe its principal brokerage services offered, including
buying and selling securities, and whether or not it offers
recommendations to retail investors.\389\ Additionally, in the
Relationship Summary, if applicable, the broker-dealer must address
whether or not the firm offers monitoring of investments.
---------------------------------------------------------------------------

    \389\ See Form CRS, Item 2.B. (Description of Services).
---------------------------------------------------------------------------

    We believe that broker-dealers will generally need to build upon
the disclosures made in the Relationship Summary as appropriate, and to
provide additional information regarding the types of services that
will be provided as part of the relationship with the retail customer
and the scope of those services (e.g., the frequency and duration of
the services), as necessary, in order to meet the Disclosure
Obligation's requirement to disclose ``all material facts'' regarding
the type and scope of services provided. Broker-dealers may be able to
satisfy this aspect of the Disclosure Obligation by relying on their
existing disclosures about the type and scope of their services,
typically reflected in their account opening agreement or other account
opening related documentation, so long as the disclosure as a whole
addresses the material facts relating to the type and scope of services
offered to the retail customer.
Disclosure of Material Limitations on Securities and Investment
Strategies
    In the Proposing Release, we included any limitations on the
products and services offered as an example of a material fact relating
to the terms and scope of the relationship that would need to be
disclosed pursuant to the Disclosure Obligation. We agree with
commenters who advocated for helping investors to understand whether a
broker-dealer limits its product offerings, and to what extent, before
entering into a relationship with a broker-dealer.\390\ We continue to
believe that broker-dealers that place material limitations on the
securities or investment strategies involving securities that may be
recommended to retail customers--such as recommending only proprietary
products or a specific asset class--need to describe the material facts
relating to those limitations.\391\
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    \390\ See CFA Institute Letter (stating that if a broker-dealer
only offers proprietary products, it should clearly call attention
to the higher product cost and the potential cost to the investor of
such a limited offering); SIFMA August 2018 Letter (stating that a
firm should be able to limit its offerings to a particular subset of
its customers to proprietary product or revenue sharing products as
long as: (1) The broker-dealer discloses that it is limiting its
recommendation to a specific set of securities and (2) the specific
set of securities contains appropriate securities to meet the
customer's needs); SPARK Letter (recommending that the Commission
permit broker-dealers that only offers proprietary products or a
limited menu of investments to satisfy the conflict mitigation
requirements by: (1) Disclosing any material limitations on the
investment products being offered and (2) reasonably concluding that
the limitations will not violate the Care Obligation).
    \391\ See Form CRS, Item 2.B.(iii).
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    Therefore, in response to comments, we are revising Regulation Best
Interest to explicitly require that, as part of the disclosure of the
type and scope of services provided to the retail customer, a broker-
dealer must include ``any material limitations on the securities or
investment strategies involving securities that may be recommended to
the retail customer.'' \392\ For purposes of this requirement, a
``material limitation'' placed on the securities or investment
strategies involving securities could include, for example,
recommending only proprietary products (e.g., any product that is
managed, issued, or sponsored by the broker-dealer or any of its
affiliates), a specific asset class, or products with third-party
arrangements (e.g., revenue sharing, mutual fund service fees).\393\
Similarly, the fact that the broker-dealer recommends only products
from a select group of issuers, or makes IPOs available only to certain
clients, could also be considered a material limitation. To cite
another example, if an associated person of a dually registered broker-
dealer only offers brokerage services, and is not able to offer
advisory services, the fact that the associated person's services are
materially narrower than those offered by the broker-dealer would
constitute a material limitation.
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    \392\ Rule 15l-1(a)(2)(A). See also Section II.C.1 for a
discussion of the materiality standard under Basic, Inc. v.
Levinson, 485 U.S. 224 (1988).
    \393\ This is consistent with the approach we are taking in the
Relationship Summary Adopting Release.
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    We recognize that, as a practical matter, all broker-dealers limit
their offerings of securities and investment strategies to a greater or
lesser degree. We do not believe that disclosing the fact that a
broker-dealer does not offer the entire possible range of securities
and investment strategies would convey useful information to a retail
customer, and therefore we would not consider this fact, standing
alone, to constitute a material limitation.\394\
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    \394\ See Basic, Inc. v. Levinson, 485 U.S. 224, 224 (1988).
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    In addition, we believe that there are a number of reasonable
practices by which appropriate limitations are determined, including
processes for the selection of a ``menu'' of products that will be
available for recommendations to retail customers. We further recognize
that these limitations can be beneficial, such as by helping ensure
that a broker-dealer and its associated persons understand the
securities they are recommending, as required by paragraph
(a)(2)(ii)(A) of the Care Obligation. We have also explicitly stated
that Regulation Best Interest would not prohibit a broker-dealer from
recommending, for example, a limited range of products, or only
proprietary products, provided the broker-dealer satisfies the
component obligations of Regulation Best Interest. Nonetheless, because
these firm-wide threshold decisions have such a significant effect on
the subsequent recommendations ultimately made to a retail customer, we
are requiring disclosure of the material limitations on the securities
or investment strategies involving securities that may be recommended--
by the broker-dealer and its associated persons--as well as any
associated conflicts of interest.
    Explicitly requiring disclosure of these limitations is also
consistent with our approach in the Care and Conflict of Interest
Obligations. As discussed below, despite the potential beneficial
aspects of some limitations, we are concerned that such limitations and
any associated conflicts of interest can negatively affect the
securities or investment strategies recommended to a retail
customer.\395\ In recognition of this concern, we have revised the
Conflict of Interest Obligation to specifically require the
establishment of policies and procedures to identify, disclose, and
address that risk.\396\ Furthermore, we reiterate that even if a
broker-dealer discloses and addresses any material limitations on the
securities or investment strategies involving securities recommended to
a retail customer, and any associated conflicts of interest, as
required by the Disclosure

and Conflict of Interest Obligations, it would nevertheless need to
satisfy the Care Obligation in recommending such products.\397\
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    \395\ See Section II.C.3, Conflicts of Interest. See Proposing
Release at 21608 (asking commenters to comment on whether, and, if
so why, the Commission should require specific disclosure on product
limitations).
    \396\ See Section II.C.4.
    \397\ See Section II.C.2.
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Account Monitoring Services
    In the Proposing Release, we identified as a material fact relating
to the scope and terms of the relationship with the retail customer the
type and scope of services provided by the broker-dealer, including,
for example, monitoring the performance of the retail customer's
account.\398\ Additionally, the Proposing Release stated that to the
extent that the broker-dealer agrees with a retail customer by contract
to provide periodic or ongoing monitoring of the retail customer's
investments for purposes of recommending changes in investments,
Regulation Best Interest would apply to, and a broker-dealer would be
liable for not complying with the proposed rule with respect to, any
recommendations about securities or investment strategies made to
retail customers resulting from such services.\399\
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    \398\ Proposing Release at 21600.
    \399\ Id. at 21594.
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    Commenters suggested that broker-dealers should be required to
clearly define the nature of account monitoring services offered, with
some commenters pointing to retail customer confusion on this
topic.\400\ One commenter stated that disclosure will not help a retail
customer of a dual-registrant who has both brokerage and advisory
accounts, who is unlikely to remember which accounts his or her
financial advisor is responsible for monitoring, and for which accounts
the customer bears that responsibility. Accordingly, the commenter
recommends that we require broker-dealers to monitor all retail
customers' accounts.\401\
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    \400\ See, e.g., NAIFA Letter (asserting broker-dealers should
be free to agree to, and define the nature of, any ongoing
relationship via contract, such as including monitoring services);
see also RAND 2018 (stating that participants demonstrated a lack of
clarity on how a financial professional would monitor an account);
OIAD/RAND (stating that some participants perceived that continuous
monitoring of a client's account is consistent with acting in the
client's best interest).
    \401\ AFL-CIO April 2019 Letter.
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    As discussed in the Solely Incidental Interpretation, we disagree
with commenters who suggested that any monitoring of customer accounts
would require a broker-dealer to register as an investment adviser and
we believe that it is important for retail customers to understand: (1)
The types of account monitoring services (if any) a particular broker-
dealer provides, and (2) whether or not the broker-dealer will be
providing monitoring services for the particular retail customer's
account. Accordingly, we believe that whether or not the broker-dealer
will monitor the retail customer's account and the scope and frequency
of any account monitoring services that a broker-dealer agrees to
provide are material facts relating to the type and scope of services
provided to the retail customer and must be disclosed pursuant to the
Disclosure Obligation. This disclosure could indicate, for example,
that the broker-dealer will monitor the account or investments at a
stated frequency in light of the retail customer's investment
objectives for the purpose of recommending an asset reallocation where
appropriate, or that the broker-dealer will monitor the account
periodically to determine whether a brokerage account continues to be
in the retail customer's best interest. Or, broker-dealers that offer
no account monitoring services could disclose that they will not
monitor the account or consider whether any recommendations may be
appropriate unless the retail customer specifically requests that they
do so.\402\
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    \402\ As discussed in footnote 167, we recognize that a broker-
dealer may voluntarily, and without any agreement with the customer,
review the holdings in a retail customer's account for the purposes
of determining whether to provide a recommendation to the customer.
We do not consider this voluntary review to be ``account
monitoring,'' nor would it in and of itself on its own to create an
implied agreement with the retail customer to monitor the customer's
account. Any explicit recommendation made to the retail customer as
a result of any such voluntary review would be subject to Regulation
Best Interest.
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    The Relationship Summary requires broker-dealers to explain whether
or not they monitor retail investors' investments, including the
frequency and any material limitations.\403\ However, as noted above,
because the Relationship Summary provides high-level disclosure, in
most cases it generally would not be sufficiently specific to inform
investors about the scope and frequency of any account monitoring
services applicable to the particular retail customer's account. The
Disclosure Obligation is designed to provide investors with an expanded
description of the material information relating to such services.
Furthermore, as discussed in Section 2.B.2.b., Regulation Best Interest
applies to recommendations resulting from agreed-upon account
monitoring services (including implicit hold recommendations).
Requiring disclosure of whether or not the broker-dealer will monitor
the retail customer's account, and the scope and frequency of such
monitoring, will help retail customers understand the terms applicable
to the particular retail customer's account. While retail customers
with multiple accounts will have to keep track of the accounts for
which their broker-dealer has agreed to monitor, we believe that
requiring disclosure of this service will provide those retail
customers with sufficient clarity about the monitoring services they
may expect. Requiring all broker-dealers to monitor all retail customer
accounts, as one commenter suggested, would diminish the options
available to retail customers, who may wish to have their accounts
monitored to a greater or lesser degree (including not at all).
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    \403\ See Form CRS, Item 2.B.(i).
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Account Balance Requirements
    The Proposing Release did not address whether a broker-dealer
offering brokerage accounts subject to account balance requirements is
a ``material fact relating to the scope and terms of the
relationship.'' However, several commenters to the Form CRS proposal
suggested that the Commission require firms to disclose any account
balance requirements in the Relationship Summary.\404\ We believe that
account balance requirements are a material fact relating to the terms
and scope of the relationship. Consequently, we are interpreting the
Disclosure Obligation to include disclosure of whether a broker-dealer
has any requirements for retail customers to open or maintain an
account or establish a relationship, such as a minimum account size. We
believe that if a broker-dealer will only open a brokerage account for
a retail customer with a specific account minimum, such a basic
operational aspect of the account is a material fact relating to the
type and scope of services provided. If dollar thresholds or other
requirements apply to a retail customer's ability to maintain an
existing account, or to avoid additional fees when the threshold is
crossed (for example, a ``low account balance'' fee), such requirements
also would likely be of importance to a retail customer.\405\ We
further believe retail customers can use facts about different account
size requirements for both current and future planning and decision-
making purposes. Accordingly,

the Commission believes this information constitutes a ``material
fact'' that must be disclosed pursuant to the Disclosure Obligation.