Reg BI Frequently Asked Questions

The SEC staff has not added new Reg BI FAQs since 2020. However, the SEC staff has published Staff Bulletins (Bulletins) that reiterate the standards of conduct of broker-dealers (BDs) and investment advisers (IAs) and provide SEC staff views, in the form of questions and answers, on how BDs and IAs, and their associated persons, can satisfy their obligations under Reg BI and the fiduciary duty, respectively:

• SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors;
• SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Conflicts of Interest; and
• SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Care Obligations.

Added in December 2023:

Limited-Purpose Broker-Dealers – CRS delivery obligations to new retail investors in the context of check-and-app (or direct-sold) mutual funds and private placements:

Q: “Check and application”: My firm is a broker-dealer that sells mutual funds to retail investors through a “check and application” arrangement. In circumstances where we do not recommend the mutual fund, and do not open a brokerage account for a new or prospective retail investor, would my firm have to file and deliver Form CRS?

A: Yes. The Form CRS filing and delivery requirements under Rule 17a-14 apply even when a retail investor does not open or have an account with a broker-dealer but still engages in a securities transaction through a broker-dealer, such as the purchase of a mutual fund via a “check and application” process (i.e., the mutual fund is not held directly within a brokerage account). [1] (Posted December 8, 2023)

Q: If my firm has to file and deliver Form CRS, when is delivery triggered?

A: Under these circumstances, a broker-dealer must deliver the relationship summary before or at the time it places an order for the retail investor. [2] (Posted December 8, 2023)

Q: Private Placements: My firm is a broker-dealer that services issuers of private placement securities. In this role, we interact directly with retail investors by, for example, assisting investors with completing subscription agreements, but we do not make any recommendations to retail investors nor do we offer brokerage accounts. Would my firm have to file and deliver Form CRS?

A: Generally, yes. Broker-dealers registered with the SEC that offer services to retail investors must file and deliver a Form CRS under Rule 17a-14. Similar to the mutual fund “check and application” scenario described above, where a retail investor engages in a securities transaction for a private placement security through a broker-dealer, in the staff’s view the Form CRS filing and delivery requirements apply. In the staff’s view, whether a retail investor engages in a securities transaction for a private placement security through a broker-dealer requires a facts and circumstances evaluation of whether the broker-dealer or an associated person of the broker-dealer participates as an intermediary between the issuer and the retail investor in the purchase or subscription process. The staff believes this evaluation should consider factors including, but not limited to, whether the broker-dealer or associated person: 1) facilitates the submission of the customer’s agreement or payment by, for example, completing (or assisting the retail investor with completing) the subscription agreement; or 2) submits such agreement and/or payment on behalf of the customer.

In addition, the staff reminds broker-dealers that offer private placement securities to retail investors that they should pay careful attention as to whether communications between the broker-dealer and the retail investors can be considered to be recommendations. (Posted December 8, 2023)

Q: If my firm has to file and deliver Form CRS, when is delivery triggered?

A: When an investor engages in a securities transaction for a private placement security through a broker-dealer, the staff’s view is that the broker-dealer must deliver the relationship summary before or at the earliest of a recommendation (if there is one) or placing an order for the retail investor. [3] (Posted December 8, 2023)

Additional Delivery Requirements to Existing Clients and Customers

Q: In addition to direct-sold mutual funds and variable annuities, to what new investments does the delivery requirement under General Instruction 9.A.(iii) to Form CRS apply?

A: In the staff’s view, the earlier of the first-time recommendation to invest in, or the first-time purchase of, a private placement, structured product or other investment would trigger the delivery obligation if such investment is to be held outside an existing account. (Modified December 8, 2023)

Principal Underwriters – Selling Directly to Retail Investors

Q: My firm acts as principal underwriter to a mutual fund or variable annuity or variable life insurance contract issuer. In some instances, rather than purchasing the security through another intermediary (e.g., broker-dealer or investment adviser), retail investors contact us to make a purchase or open accounts directly with my firm. Are we considered to be offering services to retail investors for purposes of Exchange Act Rule 17a-14? 

A: Yes. In the staff’s view, a broker-dealer acting as a principal underwriter to a mutual fund or variable annuity or variable life insurance contract issuer that interacts with retail investors purchasing such securities directly through the broker-dealer would be considered to be offering services to retail investors for purposes of Exchange Act Rule 17a-14, and the obligations of Form CRS would apply. (Posted December 8, 2023)

Electronic Posting - Posting on “Doing Business As” Websites

My firm has posted the current version of its relationship summary prominently on its public website. My firm offers services to retail investors through financial professionals who use names other than my firm’s name (e.g., by using “doing business as” (“DBA”) trade names). Some of my financial professionals have their own public websites under their DBA names that, among other things, offer or promote my firm’s services (“DBA websites”). My financial professionals’ DBA websites disclose that they are offering services on behalf of my firm. 

Q: If I am a broker-dealer, investment adviser or dual registrant offering brokerage or investment advisory services to retail investors through my financial professionals operating under different DBA names, in the staff’s view, are the DBA websites that those professionals use to offer or promote my firm’s services considered websites of my firm for purposes of posting Form CRS?

A: Yes. Exchange Act Rule 17a-14(c)(3) and Advisers Act Rule 204-5(b)(3) require firms to post the current version of the relationship summary prominently on the firm’s public website (if it has one) in a location and format that is easily accessible for retail investors. In the staff’s view, if a firm offers brokerage or investment advisory services to retail investors through its financial professionals (which may be the firm’s employees or independent contractors) operating under a DBA name and the firm’s services are offered or promoted through such DBA websites, those DBA websites should generally be treated as the firm’s website for the purposes of posting Form CRS, and therefore the firm should post its relationship summary on both the firm’s public website (if it has one) and any such DBA websites in accordance with Rule 17a-14(c)(3), Rule 204-5(b)(3), and General Instruction 10.A. (Posted December 8, 2023)

Q. I am an investment adviser and some of my financial professionals are dually-licensed (i.e., in addition to being investment adviser representatives of my firm, they are also registered representatives of a broker-dealer) and operate under different DBA names with their own DBA websites. Using the DBA names, those dually-licensed financial professionals offer investment advisory services on my behalf and brokerage services on behalf of an unaffiliated broker-dealer. In the staff’s view, are the investment adviser and unaffiliated broker-dealer required to post their relationship summaries on each DBA website?

A. Yes. As discussed above, in the staff’s view, if a firm offers brokerage or investment advisory services to retail investors through its financial professionals operating using DBA names, the firm should post its relationship summary on both the firm’s public website (if it has one) and any such DBA websites in accordance with Exchange Act Rule 17a-14(c)(3), Advisers Act Rule 204-5(b)(3), and General Instruction 10.A. In the staff’s view, whether firms are affiliated with each other is not relevant to determining whether each firm must post its relationship summary on the DBA website. (Posted December 8, 2023)

Q: If I am a dual registrant offering brokerage and investment advisory services to retail investors through my financial professionals operating under different DBA names through different DBA websites, and I have prepared separate relationship summaries for brokerage services and investment advisory services, which relationship summary do I need to post on each DBA website?

A: In the staff’s view, the relationship summary that should be posted on each DBA website in this scenario will depend on the services being offered through the financial professional using a DBA name. If the financial professional offers only brokerage services, the staff believes the firm should post its broker-dealer relationship summary on the DBA website. Conversely, if the financial professional offers only investment advisory services, the staff believes the firm should post its investment adviser relationship summary on the DBA website. If the financial professional offers both brokerage and investment advisory services, the staff believes the firm should post both its broker-dealer and its investment adviser relationship summaries on the DBA website.

The staff reminds firms that the website posting and delivery requirements are distinct obligations. Accordingly, in addition to posting the relationship summaries, as required, if delivery is triggered under General Instructions 7 and 9, firms must deliver to each retail investor both relationship summaries with equal prominence and at the same time, without regard to whether the particular retail investor qualifies for those retail services or accounts. (Posted December 8, 2023)

Q. I am a broker-dealer and some of my financial professionals are dually licensed (i.e., in addition to being registered representatives of my firm, they are also investment adviser representatives of an investment adviser) and offer investment advisory services to retail investors through unaffiliated registered investment advisers. In addition to making recommendations or opening accounts for my brokerage customers, I also offer execution-only services to my financial professionals’ advisory clients. The advisers’ relationship summaries are posted on their public websites. In the staff’s view, am I subject to the Form CRS requirements when providing execution-only services to those advisory clients?

A: No. Broker-dealers providing execution-only services to an investment adviser’s advisory clients do not typically establish the kind of relationship with the adviser’s retail clients that Form CRS was designed to address. Accordingly, the staff believes the broker-dealer in this scenario would not be considered to be offering services to a retail investor for purposes of Exchange Act Rule 17a-14, and would not be subject to the Form CRS requirements when acting in such capacity. To the extent the broker-dealer interacts with the adviser’s retail investor clients in a capacity other than providing execution-only services, the broker-dealer may be subject to Form CRS requirements depending on the facts and circumstances. (Posted December 6, 2023)