SEC’s ‘Solely Incidental’ Broker-Dealer Exclusion: A Breakdown
October 22, 2019 by Beth Miller
On June 5, 2019, the Securities and Exchange Commission adopted a rulemaking package that is applicable to investment advisers and broker-dealers. The package includes two final rules and two interpretations — Regulation Best Interest, Investment Adviser Standard of Conduct Interpretation, Form CRS – Relationship Summary, and Solely Incidental Broker-Dealer Exclusion Interpretation. This is the fourth in a series of articles describing the SEC’s rulemaking package.
Section 202(a)(11)(C) of the Investment Advisers Act of 1940 excludes from the definition of “investment adviser” a broker-dealer who provides investment advice that is “solely incidental to the conduct of his business as a broker or dealer and who receives no special compensation.”
As summarized by the SEC, this language illustrates that Congress knew when it passed the Advisers Act that it is not uncommon for broker-dealers to provide investment advice in the course of their business. Congress also acknowledged that the provision of such limited advisory services by broker-dealers should not (generally) subject them to regulation under the Advisers Act.
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