Reg Bi

The fiduciary standard requires investment advisers to: (1) place the client's interests above their own at all times; (2) provide only suitable advice based on the client's financial situation and needs; (3) disclose all material conflicts of interest; and (4) seek best execution for client transactions. This is a higher standard than the broker-dealer standard — advisers must avoid not just unsuitable recommendations but also self-dealing and conflicts that might bias their advice. Note the dual-hat distinction: when a broker-dealer acts in a broker capacity with retail customers, Reg BI (effective June 30, 2020) imposes a best interest standard (not merely suitability); when acting as an investment adviser, the full fiduciary standard applies. Series 66 candidates must recognize which standard applies based on the capacity the firm is acting in. Conflicts of interest arise whenever the adviser's financial interests might influence — or appear to influence — advice given to clients. Common conflicts include: receiving third-party compensation (soft dollars, 12b-1 fees from mutual funds, referral fees); engaging in principal transactions (selling to clients from the adviser's own inventory); recommending proprietary products; and cross-transactions between advisory clients. The remedy is full disclosure of all material conflicts, obtained with client consent where required. Prohibited practices under the Investment Advisers Act and NASAA model rules include: - Charging undisclosed compensation: Advisers may not receive compensation from a third party in connection with client transactions without full disclosure and client consent. - Borrowing from clients: Investment advisers may not borrow money from clients, with narrow exceptions for clients who are broker-dealers, financial institutions, or related persons. - Guaranteeing performance: No guarantee that a client will not lose money or will achieve any specific return.…