MFA and AIMA Submit Letter on Standards of Conduct to SEC

On August 7, MFA and AIMA submitted a joint comment letter to the SEC in response to the proposed Interpretation Regarding Standard of Conduct for Investment Advisers, proposed Form CRS Relationship Summary, and proposed Regulation Best Interest regulation.

  • Interpretation Regarding Standard of Conduct for Investment Advisers – We do not believe it is necessary or appropriate for the SEC to adopt the Interpretation given the extensive judicial and common law precedent that already addresses the full range of relationships investment advisers establish with their diverse clientele. We are concerned that the SEC’s interpretation goes beyond this well-established law and will disrupt long-standing industry norms, creating legal and compliance uncertainty that is likely to limit investment choices and increase costs for clients. If the SEC determines to move forward with an interpretation, it should, at a minimum, modify the proposal to account for the nuances of existing advisory relationships and undertake additional cost-benefit analysis, as we believe the proposal underestimates the economic impact on investors and investment advisers.
  • Form CRS Relationship Summary – We generally agree that both broker-dealers and investment advisers should be obligated to make material disclosures in connection with their relationships with “retail investors.” However, we believe that the proposed definition of “retail investor” in the proposed CRS Regulation is overbroad to the extent it includes sophisticated institutional clients and sophisticated natural persons, and we request that the SEC exclude them from the definition of “retail investor”. We also request that the SEC clarify that the investment adviser is not required to create a Form CRS for a pooled investment vehicle or deliver such a form to either the vehicle or to the underlying investors in the vehicle.
  • Regulation Best Interest – We believe the proposed rule is overbroad with respect to the definition of retail customer and also with respect to the types of transactions covered by the rule, which should be more closely aligned with the statutory mandate.  We also believe that the statutory language and historical record do not support expanding the scope of covered transactions to private offering transactions involving sophisticated investors that are, by definition, not transactions with retail customers.