Interpretive Release Commission Interpretation Regarding the Solely Incidental Prong of the Broker-Dealer Exclusion From the Definition of Investment Adviser IA-5249

Conformed to Federal Register version
SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 276
[Release No. IA-5249]
Commission Interpretation Regarding the Solely Incidental Prong of the Broker-Dealer
Exclusion from the Definition of Investment Adviser
AGENCY: Securities and Exchange Commission.
ACTION: Interpretation.
SUMMARY: The Securities and Exchange Commission (the “SEC” or the “Commission”) is
publishing an interpretation of a section of the Investment Advisers Act of 1940 (the “Advisers
Act” or the “Act”), which excludes from the definition of “investment adviser” any broker or
dealer that provides advisory services when such services are “solely incidental” to the conduct
of the broker or dealer’s business and when such incidental advisory services are provided for no
special compensation.
DATES: Effective July 12, 2019.
FOR FURTHER INFORMATION CONTACT: James McGinnis, Senior Counsel,
Investment Adviser Regulation Office, at (202) 551-6787 or IArules@sec.gov; and Benjamin
Kalish, Attorney-Advisor, or Parisa Haghshenas, Branch Chief, Chief Counsel’s Office at (202)
551-6825 or IMOCC@sec.gov, Division of Investment Management, Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549-8549.
SUPPLEMENTARY INFORMATION: The Commission is publishing an interpretation of
the solely incidental prong of the broker-dealer exclusion in section 202(a)(11)(C) of the

2
Advisers Act [15 U.S.C. 80b].1
TABLE OF CONTENTS
I. 	Introduction
II. 	Interpretation and Application
A. 	Historical Context and Legislative History
B. 	Scope of the Solely Incidental Prong of the Broker-Dealer Exclusion
C. 	Guidance on Applying the Interpretation of the Solely Incidental Prong
III. 	Economic Considerations
A. 	Background
B. 	Potential Economic Effects
I. 	I NTRODUCTION
The Advisers Act regulates the activities of certain “investment advisers,” who are
defined in section 202(a)(11) of the Advisers Act in part as persons who, for compensation,
engage in the business of advising others about securities. Section 202(a)(11)(C) excludes from
the definition of investment adviser—and thus from the application of the Advisers Act—a
broker or dealer “whose performance of such advisory services is solely incidental to the conduct
of his business as a broker or dealer and who receives no special compensation” for those
services (the “broker-dealer exclusion”). The broker-dealer exclusion shows, on the one hand,
that at the time the Advisers Act was enacted Congress recognized broker-dealers commonly
provided some investment advice to their customers in the course of their business as broker-
dealers and that it would be inappropriate to bring broker-dealers within the scope of the
1 15 U.S.C. 80b. Unless otherwise noted, when we refer to the Advisers Act, or any paragraph of the
Advisers Act, we are referring to 15 U.S.C. 80b of the United States Code, at which the Advisers Act is
codified.

3
Advisers Act because of this aspect of their business.2 On the other hand, the limitations of the
exclusion show that Congress excluded broker-dealer advisory services from the scope of the
Advisers Act only under certain circumstances—namely, when those services are solely
incidental to the broker-dealer’s regular business as a broker-dealer (the “solely incidental
prong”) and when the broker-dealer receives no special compensation (the “special
compensation prong”).3
On April 18, 2018, the Commission proposed a rulemaking intended to enhance the
standard of conduct for broker-dealers when providing recommendations.4 The Commission
also proposed an interpretation intended to reaffirm and in some cases clarify the standard of
conduct for investment advisers,5 as well as a rulemaking intended to provide retail investors
with clear and succinct information regarding key aspects of their brokerage and advisory
relationships.6 The Reg. BI Proposal discussed the broker-dealer exclusion and requested
2 Opinion of General Counsel Relating to Section 202(a)(11)(C) of the Investment Advisers Act of 1940,
Investment Advisers Act Release No. 2 (Oct. 28, 1940) (“Advisers Act Release No. 2”).
3 See Regulation Best Interest, Securities Exchange Act Release No. 83062 (April 18, 2018) [83 FR 21574
(May 9, 2018)] (“Reg. BI Proposal”), at n.343. The broker-dealer exclusion is conjunctive—that is, the
broker-dealer must both provide investment advice that is solely incidental to the conduct of his business as
a broker-dealer and the broker-dealer must receive no special compensation. In the event that a broker-
dealer’s investment advice fits within the guidance of this Release with respect to the solely incidental
prong, that broker-dealer must also receive no special compensation for the advisory service to be
consistent with the broker-dealer exclusion.
4 See id.
5 Proposed Commission Interpretation Regarding Standard of Conduct for Investment Advisers; Request for
Comment on Enhancing Investment Adviser Regulation, Investment Advisers Act Release No. 4889 (April
18, 2018) [83 FR 21203 (May 9, 2018)] (the “Proposed Fiduciary Interpretation”).
6 See Form CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail
Communications and Restrictions on the Use of Certain Names or Titles, Investment Advisers Act Release
No. 4888 (April 18, 2018) [83 FR 21416 (May 9, 2018)] (“Relationship Summary Proposal”).
Concurrently with this interpretation, we also are adopting the final versions of the rules and interpretations
proposed in the Relationship Summary Proposal, the Reg. BI Proposal, and the Proposed Fiduciary
Interpretation. See Form CRS Relationship Summary; Amendments to Form ADV, Investment Advisers
Act Release No. 5247 (June 5, 2019) (the “Relationship Summary Adoption”); Regulation Best Interest:
The Broker-Dealer Standard of Conduct, Exchange Act Release No. 86031 (June 5, 2019) (“Reg. BI

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comment on the scope of the exclusion as applied to a broker-dealer’s exercise of investment
discretion.7 While some commenters addressed when a broker-dealer’s advisory services are
“solely incidental to the conduct of his business as a broker or dealer” in the context of the
exercise of investment discretion, more commenters addressed this prong more generally.8 For
example, many commenters requested general guidance on or expressed views about the
meaning of the solely incidental prong9 and the permissibility under this prong of various
broker-dealer activities that relate to the investment advice they provide in light of the Reg. BI
Proposal and the Relationship Summary Proposal.10 Other commenters suggested that our
approach to the Reg. BI Proposal was inconsistent with the solely incidental prong of the broker-
dealer exclusion. One commenter suggested that the Reg. BI Proposal, if adopted, would allow
broker-dealers to provide investment advice beyond what the solely incidental prong should
“reasonably be interpreted to permit,” arguing that to qualify for exclusion from regulation under
Adoption”); and Commission Interpretation Regarding Standard of Conduct for Investment Advisers,
Investment Advisers Act Release No. 5248 (June 5, 2019) (“Final Fiduciary Interpretation”).
7 See Reg. BI Proposal, supra footnote 3, at nn.342–67 and accompanying text.
8 We considered comments submitted in File No. S7-07-18 (Reg. BI Proposal, supra footnote 3); File No.
S7-08-18 (Relationship Summary Proposal, supra footnote 6); and File No. S7-09-18 (Proposed Fiduciary
Interpretation, supra footnote 5). Those comments are available on the Commission’s website at
https://www.sec.gov/comments/s7-07-18/s70718.htm, https://www.sec.gov/comments/s7-08-
18/s70818.htm, and https://www.sec.gov/comments/s7-09-18/s70918.htm, respectively.
9 See, e.g., Comment Letter of North American Securities Administrators Association, Inc. (Aug. 23, 2018)
(“NASAA Letter”); Comment Letter of CFA Institute (Aug. 7, 2018) (“CFA Institute Letter”) (noting the
“need to give guidance” on the broker-dealer exclusion and noting that the Commission has legal authority
to provide needed clarification); Comment Letter of the Institute for the Fiduciary Standard (Aug. 6, 2018)
(“IFS Letter”) (arguing that when a broker’s investment advice is solely incidental to its business is one of
a number of “questions the SEC should address”); Comment Letter of the Consumer Federation of America
(Aug. 7, 2018) (“CFA Letter”) (arguing that the Commission failed to “engage” on “just how far the ‘solely
incidental’ exclusion stretches”); Comment Letter of the Investment Adviser Association (Aug. 6, 2018)
(“IAA Letter”) (“[T]he Commission should reconsider when broker-dealers should be able to rely on the
Solely Incidental [prong].”); Comment Letter of Michael Kitces (Aug. 2, 2018) (“Kitces Letter”) (arguing
that the Commission’s prior interpretations of the solely incidental prong are inconsistent with the plain
meaning and legislative history of the term).
10 See, e.g., CFA Letter; Kitces Letter.

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the Advisers Act, broker-dealers should only “be able to provide very limited advice….”11 Two
commenters thought that the Commission’s expressed support for maintaining the “broker-dealer
model as an option for retail customers seeking investment advice”12 was inconsistent with the
solely incidental prong.13 Another commenter called the Commission’s previously articulated
interpretation of the solely incidental prong “vague.”14 The comments we received demonstrate
that there is disagreement about when the provision of broker-dealer investment advice is
consistent with the solely incidental prong.15 In light of these comments, we are adopting this
interpretation to confirm and clarify the Commission’s position with respect to the solely
incidental prong. To illustrate how the interpretation functions, we discuss its application to two
advisory services that a broker or dealer may provide, namely: (i) exercising investment
discretion over customer accounts and (ii) account monitoring.16 Our interpretation
complements each of the rules and forms we are adopting, which, among other things, are
11 See NASAA Letter.
12 See Reg. BI Proposal, supra footnote 3, at text accompanying n.31.
13 See CFA Letter (stating that certain aspects of the Relationship Summary Proposal and the Reg. BI
Proposal indicated that broker-dealers were in an “advice relationship” in a manner that does not “remotely
sound like advice that is ‘solely incidental to’ the conduct of their business as a broker or dealer”); Kitces
Letter (arguing that referring to the broker-dealer model as a “model for advice” is in contravention of the
broker-dealer exclusion because “advice can only be incidental if it occurs by chance, as a consequence of
a product sale, or without intent to give advice”).
14 See Comment Letter of Securities Arbitration Clinic, St. Vincent DePaul Legal Program, Inc., St. John’s
University School of Law (Aug. 7, 2018) (“St. John’s Clinic Letter”).
15 Furthermore, interested parties have for years expressed their views to the Commission on what they
believe the broker-dealer exclusion requires, including disagreements with the Commission’s interpretation
of the exclusion. See, e.g., Comment Letter of Consumer Federation of America (Sept. 20, 2004) (arguing
that the Commission should “define ‘solely incidental’ in a way that hews closely to what commenters
described as Congress’s clear intent to provide only a very narrow exclusion”), available at
https://www.sec.gov/rules/proposed/s72599/s72599-1101.pdf.
16 We received comments requesting guidance with respect to the solely incidental prong on both activities.
See infra section II.C.

6
intended individually and collectively to enhance investor understanding of the relationships and
services offered by investment advisers and broker-dealers.17
II. 	I NTERPRETATION AND A PPLICATION
A. Historical Context and Legislative History
When the Advisers Act was enacted in 1940, broker-dealers regularly provided
investment advice.18 They did so in two distinct ways: as an auxiliary part of traditional
brokerage services for which their brokerage customers paid fixed commissions and,
alternatively, as a distinct advisory service for which their advisory clients separately contracted
and paid a fee.19 The advice that broker-dealers provided as an auxiliary component of
traditional brokerage services was referred to as “brokerage house advice” in a leading study of
17 See Reg. BI Adoption; Relationship Summary Adoption; Final Fiduciary Interpretation, supra footnote 6.
We also received a few comments in response to the Reg. BI Proposal and the Relationship Summary
Proposal requesting that the Commission provide guidance on the special compensation prong. See, e.g.,
CFA Letter (arguing, among other points, that special compensation would constitute any compensation
other than commissions for trade execution); Comment Letter of Coalition of Mutual Fund Investors (Aug.
8, 2018) (“Mutual Fund Investors Letter”) (arguing that special compensation should include all asset-
based compensation and third-party fees from mutual funds and their advisers). We are not providing
guidance on the special compensation prong in this Release as we do not believe our views on this prong
require additional clarification. The Commission has considered the meaning of the special compensation
prong on previous occasions. See, e.g., Interpretive Rule Under the Advisers Act Affecting Broker-Dealers,
Investment Advisers Act Release No. 2652 (Sept. 24, 2007) (“2007 Proposing Release”); Certain Broker-
Dealers Deemed Not to Be Investment Advisers, Investment Advisers Act Release No. 2376 (Apr. 12,
2005) (“2005 Adopting Release,” in which, as discussed infra at footnote 38 and accompanying text, the
Commission adopted a rule that a court vacated on grounds that did not address our interpretive positions
relating to the solely incidental prong). The comments we received in response to requests for comment to
the Reg. BI Proposal and the Relationship Summary Proposal did not demonstrate that there is significant
disagreement with our interpretation of that prong.
18 For an extensive discussion of broker-dealer practice in the years leading up to enactment of the Advisers
Act, from which this summary is drawn, see 2005 Adopting Release, supra footnote 17; Certain Broker-
Dealers Deemed Not to Be Investment Advisers, Investment Advisers Act Release No. 2340 (Jan. 6, 2005)
(“2005 Proposing Release”).
19 See, e.g., Investment Trusts and Investment Companies: Hearings on S. 3580 Before a Subcomm. of the
Senate Committee on Banking and Currency, 76 th Cong., 3d Sess. 736 (1940) (“Hearings on S. 3580”)
(testimony of Dwight C. Rose, president of the Investment Counsel Association of America) (“Most . . .
investment dealers . . . and brokers advise on investment problems, either as an auxiliary service without
charge, or for specific charges allocated to this specific function.”).

7
the time.20 “Brokerage house advice” was extensive and varied,21 and included information
about various corporations, municipalities, and governments;22 broad analyses of general
business and financial conditions;23 market letters and special analyses of companies’
situations;24 information about income tax schedules and tax consequences;25 and “chart
reading.”26 The second way in which broker-dealers dispensed advice was to charge a distinct
fee for advisory services, which typically were provided through special “investment advisory
departments” within broker-dealer firms that advised customers for a fee in the same manner as
firms whose sole business was providing “investment counsel” services.27
20 See Twentieth Century Fund, T HE SECURITY M ARKETS (1935) (“SECURITY M ARKETS”) at 633–46
(discussing “brokerage house advice”); see also Charles F. Hodges, W ALL STREET (1930) (“W ALL
STREET”) at 253–85; SEC, REPORT ON I NVESTMENT COUNSEL, I NVESTMENT M ANAGEMENT, I NVESTMENT
SUPERVISORY, AND I NVESTMENT ADVISORY SERVICES (1939) (H.R. Doc. No. 477) (“I NVESTMENT
COUNSEL REPORT”) at n.1.
21 See, e.g., REPORT OF P UBLIC E XAMINING B D. ON CUSTOMER P ROTECTION TO N.Y. STOCK E XCHANGE (Aug.
31, 1939), at 3:
The customer entrusts the broker with information regarding his financial affairs and dealings
which he expects to be kept in strict confidence. Frequently he looks to the broker to perform
a whole series of functions relating to the investment of his funds and the care of his
securities. Although he could secure similar services at his bank, he asks his broker, as a
matter of choice and convenience, to hold credit balances of cash pending instructions; to
retain securities in safekeeping and to collect dividends and interest; to advise him respecting
investments; and to lend him money on suitable collateral.
22 SECURITY M ARKETS, supra footnote 20, at 633; W ALL S TREET, supra footnote 20, at 254 (“This
information includes current and comparative data for a number of years on earning and earnings records,
capitalization, financial position, dividend record, comparative balance sheets and income statements . . .
production and operating statistics, territory and markets served, officers and directors of the company and
much other information of value to the investor in appraising the value of a security.”).
23 SECURITY M ARKETS, supra footnote 20, at 634; W ALL S TREET, supra footnote 20, at 254.
24 SECURITY M ARKETS, supra footnote 20, at 640–43; W ALL S TREET, supra footnote 20, at 277–85.
25 SECURITY M ARKETS, supra footnote 20, at 641.
26 Id. at 643 (defining “chart reading” as “the study of the charted course of prices and volume of trading over
a long period of time in order to discover typical conformations recurring in the past with sufficient
frequency to be utilized in the present as a basis of judgment as to impending price changes”).
27 See Advisers Act Release No. 2, supra footnote 2; see also SECURITY M ARKETS, supra footnote 20, at 646,
653 (referring to “investment supervisory departments” and “special investment management departments”
of broker-dealers). In general, contemporaneous literature used the term “investment counsel” or
“investment counselor” to refer to those who provided investment advice for a fee and whose advisory

8
Between 1935 and 1939, the Commission conducted a congressionally mandated study of
investment trusts and investment companies and in connection with this study surveyed
investment advisers, including broker-dealers with investment advisory departments.28 In a
report to Congress (the “Investment Counsel Report”), the Commission informed Congress that
the Commission’s study had identified two broad classes of problems relating to investment
advisers that warranted legislation: “(a) the problem of distinguishing between bona fide
investment counselors and ‘tipster’ organizations; and (b) those problems involving the
organization and operation of investment counsel institutions.”29 Based on the findings of the
Investment Counsel Report, representatives of the Commission testified at the congressional
hearings on what ultimately became the Advisers Act in favor of regulating the persons engaged
in the business of providing investment advice for compensation.
Congress responded by passing the Advisers Act. Section 202(a)(11) of the Act defined
“investment adviser”—those subject to the requirements of the Act—broadly to include “any
person who, for compensation, engages in the business of advising others, either directly or
through publications or writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part of a regular business,
issues or promulgates analyses or reports concerning securities....” In adopting this broad
definition, Congress necessarily rejected arguments presented during its hearings that legitimate
relationship with clients had a supervisory or managerial character. See id. at 646 (defining “investment
counselor” as “an individual, institution, organization, or department of an institution or organization which
undertakes for a fee to advise or to supervise the investment of funds by, and on occasion to manage the
investment accounts of, clients”). Under the Advisers Act, “investment counsel” is a defined subset of the
“investment advisers” to whom the Act applies. See section 208(c) of the Act.
28 I NVESTMENT COUNSEL REPORT, supra footnote 20, at 1. The study was conducted pursuant to section 30
of the Public Utility Holding Company Act of 1935 [15 U.S.C. 79z-4]; see Hearings on S. 3580, supra
footnote 19, at 995–96.
29 I NVESTMENT COUNSEL REPORT, supra footnote 20, at 27.

9
investment counselors30 should be free from any oversight except, perhaps, by the few states that
had passed laws regulating investment counselors and by private organizations, such as the
Investment Counsel Association of America.31 Instead, in responding to such views,
congressional committee members repeatedly observed that those whose business was limited to
providing investment advice for compensation were subject to little if any regulatory oversight,
and questioned why they should not be subject to regulation even though other professionals
were.32
Conversely, the Advisers Act specifically excluded persons, among others, from the
broad definition of “investment adviser” to the extent that such persons rendered investment
advice incidental to their primary business.33 Broker-dealers were among these excluded
30 Hearings on S. 3580, supra footnote 19, at 745–48; see also 2005 Adopting Release, supra footnote 17, at
n.62.
31 Hearings on S. 3580, supra footnote 19, at 716–18, 736–38, 740-41, 744–45, 760, 763.
32 Id. at 738–39, 745–49, 751–53 (Senators Wagner and Hughes). David Schenker, chief counsel for the
Commission’s study, offered the following observations in response to investment counselors’ arguments
against the registration and regulation required by the Act:
Then there is another curious thing, Senator, that those people who are subject to supervision
by some authoritative body of some kind, such as securities dealers or investment bankers
have to register with us as brokers and dealers. People, who are brokers and members of
stock exchanges and are supervised by the stock exchanges. Curiously enough, the people in
the investment-counsel business who are supervised are not eligible for membership in the
investment counsel association; because the association says that if you are in the brokerage
or banking business you cannot be a member of the association.
So the situation is that if you take their analysis, the only ones who would not be subject to
regulation by the S.E.C. would be the people who are not subject to regulation by anybody at
all. These investment counselors who appeared here are no different from the over-the-
counter brokers and dealers or the members of the New York Stock Exchange.
Id. at 995–96. Eventually, members of the investment counsel industry agreed with the proposed
legislation. See id. at 1124; Investment Trusts and Investment Companies: Hearings on H.R. 10065 Before
a Subcomm. of the House Committee on Interstate and Foreign Commerce, 76 th Cong., 3d Sess. (1940)
(“Hearings on H.R. 10065”); see also S. REP. N O. 76-1775, 76 th Cong., 3d Sess. 21 (1940); H.R. REP. N O.
76-2639, 76th Cong., 3d Sess. 27 (1940).
33 The exclusion for certain professionals in Advisers Act section 202(a)(11) is very similar to certain state-
law provisions governing investment counselors at the time, which excepted “brokers, attorneys, banks,
savings and loan associations, trust companies, and certified public accountants.” See STATUTORY
REGULATION OF I NVESTMENT ADVISERS (prepared by the Research Department of the Illinois Legislative

10
persons, as section 202(a)(11)(C) of the Act 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 therefor”—i.e., the
broker-dealer exclusion.
B. Scope of the Solely Incidental Prong of the Broker-Dealer Exclusion
The Commission and its staff have on several occasions discussed the scope of the
broker-dealer exclusion.34 In adopting a rule regarding fee-based brokerage accounts in 2005,
for example, the Commission stated that investment advisory services are “solely incidental to”
the conduct of a broker-dealer’s business when the services are offered in connection with and
are reasonably related to the brokerage services provided to an account.35 The interpretation was
consistent with the Commission’s contemporaneous construction of the Advisers Act as
excluding broker-dealers whose investment advice is given “solely as an incident of their regular
business.”36 The 2005 interpretation stated that the importance or frequency of the investment
advice was not a determinant of whether the solely incidental prong was satisfied; the
Commission rejected the view that only minor, insignificant, or infrequent advice qualifies for
Council) reprinted in Hearings on S. 3580, supra footnote 19, at 1007. That report stated that “the
investment advice furnished by these excepted groups would seem to be merely incidental to some other
function being performed by them.” Id.
34 See, e.g., Advisers Act Release No. 2, supra footnote 2; Applicability of the Investment Advisers Act to
Certain Brokers and Dealers; Interpretation of the Term ‘Special Compensation’, Investment Advisers Act
Release No. 640 (Oct. 5, 1978); Applicability of the Investment Advisers Act to Financial Planners,
Pension Consultants, and Other Persons Who Provide Investment Advisory Services as a Component of
Other Financial Services, Investment Advisers Act Release No. 1092 (Oct. 8, 1987).
35 2005 Adopting Release, supra footnote 17; 2005 Proposing Release, supra footnote 18.
36 See Advisers Act Release No. 2, supra footnote 2; see also 2005 Adopting Release, supra footnote 17.

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the broker-dealer exclusion, noting that the advice broker-dealers gave as part of their brokerage
services in 1940 was often substantial and important to customers.37
On March 30, 2007, the Court of Appeals for the District of Columbia Circuit in
Financial Planning Association v. SEC vacated the rule regarding fee-based brokerage accounts,
but not on grounds that addressed our interpretive positions relating to the solely incidental
prong.38 In September 2007, we proposed to reinstate these interpretive positions.39
Since that time, a federal appellate court has addressed the solely incidental prong. In
2011, in Thomas v. Metropolitan Life Insurance Company, the Court of Appeals for the Tenth
Circuit addressed the scope of the broker-dealer exclusion in the context of a private suit alleging
that a broker had violated the Advisers Act by failing to disclose incentives to sell proprietary
products.40 As part of its analysis of the exclusion, the court looked to the interpretation of the
solely incidental prong that we advanced in 2005 and 2007. The court found these
interpretations to be “persuasive” in light of its own analysis of the text of the solely incidental
prong of the broker-dealer exclusion as well as the legislative history and historical background
of the Advisers Act.41 The court concluded that a broker-dealer’s investment advice is solely
incidental to its conduct as a broker-dealer if the advice is given “only in connection with the
primary business of selling securities.”42 Thus, the court explained, “broker-dealers who give
advice that is not connected to the sale of securities—or whose primary business consists of
37 See 2005 Adopting Release, supra footnote 17, at nn.139–42 and accompanying text.
38 See 482 F.3d 481 (D.C. Cir. 2007).
39 2007 Proposing Release, supra footnote 17.
40 631 F.3d 1153 (10 th Cir. 2011).
41 Id. at 1163–64.
42 Id. at 1164.

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giving advice—do not meet the [solely incidental] prong” of the broker-dealer exclusion.43 The
court also agreed with the Commission’s interpretations that the solely incidental prong does not
hinge upon “the quantum or importance” of a broker-dealer’s advice but on its relationship to the
broker-dealer’s primary business.44 In the court’s view, “[t]he quantum or importance of the
broker-dealer’s advice is relevant only insofar as the advice cannot supersede the sale of the
product as the ‘primary’ goal of the transaction or the ‘primary’ business of the broker-dealer.”45
Based on the text and history of the solely incidental prong, our previous interpretations
of the prong, the Thomas decision, and the comments we have received, we are providing the
following interpretation.46 We interpret the statutory language to mean that a broker-dealer’s
provision of advice as to the value and characteristics of securities or as to the advisability of
transacting in securities47 is consistent with the solely incidental prong if the advice is provided
in connection with and is reasonably related to the broker-dealer’s primary business of effecting
securities transactions.48 If a broker-dealer’s primary business is giving advice as to the value
43 Id.
44 Id. at 1163.
45 Id. at 1166. In Thomas, the brokerage firm’s representative had conducted an analysis of the plaintiffs’
financial situation and advised them to purchase a particular financial product based in part on that analysis.
The plaintiffs alleged that the firm’s policy “required [representatives] to provide investment advice to
potential customers as a means to sell more proprietary products” and that this policy was “so pervasive
that [representatives] allegedly gave financial advice to every customer to whom they sold a product.” Id.
at 1157. The Court rejected the plaintiffs’ contention that these facts rendered the advice so central to the
transaction that it could not be considered “solely incidental” to it. Because the representative’s advice
“was closely related to the sale of the [product] and selling the [product] was the primary object of the
transaction,” the Court concluded, the advice was “solely incidental” to the representative’s conduct as a
broker. Id. at 1167.
46 To the extent that this interpretation is inconsistent with the Commission’s prior interpretations with respect
to the solely incidental prong, this interpretation supersedes those interpretations.
47 See Advisers Act section 202(a)(11) (definition of “investment adviser”).
48 Cf. 2005 Adopting Release, supra footnote 17 (“In general, investment advice is ‘solely incidental to’ the
conduct of a broker-dealer’s business within the meaning of section 202(a)(11)(C) and to ‘brokerage
services’ provided to accounts… when the advisory services rendered are in connection with and
reasonably related to the brokerage services provided.”). We have modified the wording of our

13
and characteristics of securities or the advisability of transacting in securities, or if the advisory
services are not offered in connection with or are not reasonably related to the broker-dealer’s
business of effecting securities transactions, the broker-dealer’s advisory services are not solely
incidental to its business as a broker-dealer.49 Whether advisory services provided by a broker-
dealer satisfy the solely incidental prong is assessed based on the facts and circumstances
surrounding the broker-dealer’s business, the specific services offered, and the relationship
between the broker-dealer and the customer.
The quantum or importance of investment advice that a broker-dealer provides to a client
is not determinative as to whether or not the provision of advice is consistent with the solely
incidental prong. Advice need not be trivial, inconsequential, or infrequent to be consistent with
the solely incidental prong. Indeed, our simultaneous adoption of (i) Regulation Best Interest,
which raises the standard of conduct that applies to broker-dealer recommendations, and (ii) the
relationship summary, which provides information about broker-dealer recommendation services
to customers, underscores that broker-dealer investment advice can be consequential even when
it is offered in connection with and reasonably related to the primary business of effecting
securities transactions.
interpretation to make clear that the broker-dealer’s primary business must also be effecting securities
transactions.
49 Nothing in this interpretation alters the Commission’s 2006 interpretation of section 28(e) of the Exchange
Act, which, in the context of a client commission arrangement that otherwise satisfies section 28(e),
permits a broker-dealer to be paid out of a pool of commissions for its research even if that broker-dealer
did not effect a securities transaction. See Commission Guidance Regarding Client Commission Practices
Under Section 28(e) of the Securities Exchange Act of 1934, Securities Exchange Act Release No. 54165
(July 18, 2006), 71 FR 41978 (July 24, 2006).

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To illustrate the application of this interpretation in practice, we provide the following
guidance on the application of the interpretation to (i) exercising investment discretion over
customer accounts and (ii) account monitoring.
C. Guidance on Applying the Interpretation of the Solely Incidental Prong
1. 	Investment Discretion
The Commission has for many years considered issues related to a broker-dealer’s
exercise of investment discretion over customer accounts and the extent to which such practices
could be considered solely incidental to the business of a broker-dealer.50 The Commission has
stated that discretionary brokerage relationships “have many of the characteristics of the
relationships to which the protections of the Advisers Act are important.”51 In particular, the
Commission has explained that when a broker-dealer exercises investment discretion, it is not
providing advice to customers that is in connection with and reasonably related to effecting
securities transactions; rather, the broker-dealer is making investment decisions relating to the
purchase or sale of securities on behalf of customers on an ongoing basis.52 At the same time,
the Commission has taken the position that some limited exercise of discretionary authority by
broker-dealers could be considered solely incidental to their business.53
We requested comment in the Reg. BI Proposal on a broker-dealer’s exercise of
investment discretion over customer accounts and the extent to which the exercise of investment
50 See Reg. BI Proposal, supra footnote 3, at nn.343–62 and accompanying text.
51 Final Extension of Temporary Exemption from the Investment Advisers Act for Certain Brokers and
Dealers, Investment Advisers Act Release No. 626 (Apr. 27, 1978) (“Advisers Act Release No. 626”).
52 See 2005 Proposing Release, supra footnote 18.
53 See Reg. BI Proposal, supra footnote 3, at nn.355–62 and accompanying text. Cf. NASD rule 2510
(allowing discretion only if a customer “has given prior written authorization to a stated individual or
individuals… in accordance with [FINRA] rule 3010”).

15
discretion should be considered solely incidental to the business of a broker-dealer.54
Commenters agreed that the exercise of unlimited discretion should not be considered “solely
incidental” investment advice.55 Commenters expressed varying views, however, on the extent
to which the exercise of temporary or limited discretion could be considered solely incidental to
the business of a broker-dealer. Several commenters suggested that the exercise of any
investment discretion should be governed by the Advisers Act.56 One commenter suggested that
the Commission should interpret the solely incidental prong through the lens of the definition of
“investment discretion” in section 3(a)(35) of the Securities Exchange Act of 1934 (the
“Exchange Act”),57 noting that section 3(a)(35) focuses on “the level of authority, decision-
making ability, influence – and ultimately, control – an intermediary has over another’s money”
and arguing that those with section 3(a)(35) investment discretion have a heightened likelihood
of mismanagement and abuse of another’s money.58 Another commenter suggested that, while
54 See Relationship Summary Proposal, supra footnote 6, at nn.363–67 and accompanying text; see also id. at
nn.343–62 and accompanying text for a description of the Commission’s historical approaches.
55 See, e.g., Comment Letter of Financial Planning Coalition (Aug. 7, 2018) (“FPC Letter”) (“[A] broker-
dealer’s provision of unfettered discretionary investment advice should never be considered ‘solely
incidental’ to its business as a broker-dealer.” (emphasis removed)); CFA Letter; IFS Letter.
56 See, e.g., Comment Letter of Invesco Advisers, Inc. (Aug. 7, 2018) (“Discretionary management over an
account, whether or not temporary, is not within the scope of the ‘solely incidental’ exclusion.”); IAA
Letter; CFA Institute Letter.
57 Under Exchange Act section 3(a)(35), a person exercises “investment discretion” with respect to an account
if, directly or indirectly, such person (A) is authorized to determine what securities or other property shall
be purchased or sold by or for the account, (B) makes decisions as to what securities or other property shall
be purchased or sold by or for the account even though some other person may have responsibility for such
investment decisions, or (C) otherwise exercises such influence with respect to the purchase and sale of
securities or other property by or for the account as the Commission, by rule, determines, in the public
interest or for the protection of investors, should be subject to the operation of the provisions of this title
and the rules and regulations thereunder. 15 U.S.C. 78c(a)(35).
58 See FPC Letter (noting also that several federal and state courts have used factors similar to those in section
3(a)(35) to impose a fiduciary standard). Another commenter also suggested using Exchange Act section
3(a)(35) “investment discretion” as a basis for establishing whether discretion is not solely incidental for
purposes of the broker-dealer exclusion, with an exception for investment discretion “that a customer grants
on a temporary or limited basis.” See Comment Letter of Pickard Djinis and Pisarri (Aug. 14, 2018)
(“Pickard Letter”).

16
discretion generally should subject a broker-dealer to the Advisers Act, there are certain cases
where temporary or limited discretion does not have the supervisory or managerial character of
the investment discretion warranting the protections of the Advisers Act.59
Applying our interpretation of the solely incidental prong, a broker-dealer’s exercise of
unlimited discretion60 would not be solely incidental to the business of a broker-dealer consistent
with the meaning of section 202(a)(11)(C).61 It would be inconsistent with the solely incidental
prong for broker-dealers to exercise “investment discretion” as that term is defined in section
3(a)(35) of the Exchange Act with respect to any of its accounts, except for certain instances of
investment discretion granted by a customer on a temporary or limited basis, as discussed below.
A broker-dealer with unlimited discretion to effect securities transactions possesses ongoing
authority over the customer’s account indicating a relationship that is primarily advisory in
nature; such a level of discretion by a broker-dealer is so comprehensive and continuous that the
provision of advice in such context is not incidental to effecting securities transactions.
We recognize, however, that there are situations where a broker-dealer may exercise
temporary or limited discretion in a way that is not indicative of a relationship that is primarily
advisory in nature. Generally, these are situations where the discretion is limited in time, scope,
or other manner and lacks the comprehensive and continuous character of investment discretion
59 See Comment Letter of the Securities Industry and Financial Markets Association (Aug. 7, 2018) (“SIFMA
Letter”).
60 We view unlimited investment discretion as a person having the ability or authority to buy and sell
securities on behalf of a customer without consulting the customer—i.e., having responsibility for a
customer’s trading decisions.
61 The Commission has in the past stated that the quintessentially supervisory or managerial character of
investment discretion warrants the protection of the Advisers Act. See Amendment and Extension of
Temporary Exemption from the Investment Advisers Act for Certain Brokers and Dealers, Investment
Advisers Act Release No. 471 (Aug. 20, 1975); see also 2005 Proposing Release, supra footnote 18; 2005
Adopting Release, supra footnote 17.

17
that would suggest that the relationship is primarily advisory. The totality of the facts and
circumstances would be relevant to determining whether temporary or limited discretion is
consistent with the solely incidental prong. Taking into consideration specific examples that
commenters have suggested in the past, instances of temporary or limited investment discretion
that, standing alone, would not support the conclusion that a relationship is primarily advisory—
and therefore outside the scope of the solely incidental prong—include discretion: (i) as to the
price at which or the time to execute an order given by a customer for the purchase or sale of a
definite amount or quantity of a specified security; (ii) on an isolated or infrequent basis, to
purchase or sell a security or type of security when a customer is unavailable for a limited period
of time; (iii) as to cash management, such as to exchange a position in a money market fund for
another money market fund or cash equivalent;62 (iv) to purchase or sell securities to satisfy
margin requirements, or other customer obligations that the customer has specified; (v) to sell
specific bonds or other securities and purchase similar bonds or other securities in order to
permit a customer to realize a tax loss on the original position; (vi) to purchase a bond with a
specified credit rating and maturity; and (vii) to purchase or sell a security or type of security
limited by specific parameters established by the customer. We view these examples of
temporary or limited discretion as typically consistent with the broker-dealer exclusion because
62 Certain changes to money market fund regulation and operations have been implemented since our prior
interpretations. See Money Market Fund Reform; Amendments to Form PF, Investment Company Act
Release No. 31166 (Jul. 23, 2014) (removing an exemption that permitted institutional non-government
money market funds to maintain a stable net asset value, while maintaining such exemption for certain
other money market funds, and applying certain fees and gates reforms to institutional non-government
money market funds and retail money market funds but not to government money market funds, among
other changes). In light of these changes, differently categorized money market funds may have different
investment characteristics. Accordingly, we anticipate that FINRA will be reviewing the application of the
rules that apply to the exercise of broker-dealer discretion in this context. The Commission staff also will
evaluate broker-dealer exercise of discretionary cash management to consider whether additional measures
may be necessary.

18
they are in connection with and reasonably related to a broker-dealer’s business of effecting
securities transactions and do not suggest that the broker-dealer’s primary business is providing
investment advice.
We have previously described a similar list of situations that we would consider
temporary or limited discretion that may be consistent with the solely incidental prong.63 We
make three refinements.
First, we are not including authority for a period “not to exceed a few months” relating to
the time a broker-dealer may purchase or sell a security or type of security when a customer is
unavailable for a limited period of time. Depending on the facts and circumstances, a period of
discretion lasting a few months may be indicative of a business or customer relationship that is
primarily advisory in nature.
Second, we would view it as consistent with our interpretation of the solely incidental
prong for broker-dealers to purchase or sell securities to satisfy margin requirements, or other
customer obligations that the customer has specified (new wording italicized). In our view, there
may be similar obligations to a broker-dealer or a third party whereby a broker-dealer may be
authorized to make a purchase or sale, such as a sale to satisfy a collateral call.
Third, we would view it as consistent with our interpretation of the solely incidental
prong for broker-dealers to sell specific bonds or other securities in order to permit a customer to
realize a tax loss on the original position (new wording italicized). We see no distinction
between bonds or other securities in this particular context.
2. 	Account Monitoring
63 See 2005 Adopting Release, supra footnote 17, at nn.178–81 and accompanying text; 2007 Proposing
Release, supra footnote 17, at n.13 and accompanying text.

19
We received several comments regarding the extent to which a broker-dealer may
monitor the status and performance of a customer’s account while relying on the broker-dealer
exclusion. Some commenters suggested that a broker-dealer’s agreement to provide ongoing
monitoring for the purpose of recommending changes to a customer’s investments is not an
advisory service that is solely incidental to the primary securities transaction business of a
broker-dealer and thus the broker-dealer exclusion should not be available to broker-dealers who
provide such services.64 Another commenter suggested that broker-dealers providing
personalized investment advice about securities on an ongoing basis should not be able to rely on
the broker-dealer exclusion.65 Commenters also suggested that providing services that cause
overseen assets to meet the definition of “regulatory assets under management” under Form
ADV (i.e., securities portfolios for which the broker-dealer provides “continuous and regular
supervisory or management services”) should subject a broker-dealer to the Advisers Act.66
We disagree with commenters who suggested that any monitoring of customer accounts
would not be consistent with the solely incidental prong. A broker-dealer that agrees to
64 See FPC Letter (“[B]roker-dealers that enter into agreements with retail customers to provide ongoing
monitoring for purposes of recommending changes in investments should be considered investment
advisers and subject to fiduciary obligations under the Advisers Act. Entering into an agreement to provide
ongoing monitoring… goes beyond advice that is solely incidental to the conduct of business as a broker-
dealer….”); IAA Letter (same quotation as the FPC Letter); IAA Letter (“[A] broker-dealer that agrees to
provide a retail customer ongoing monitoring for purposes of recommending changes in investments would
not be providing services that are solely incidental to its business as a broker-dealer under the 2007
interpretation.”); Fisher Letter (“Brokers can give ongoing investment advice… yet still not be required to
register as an investment adviser…. [T]he boundaries [between brokers and investment advisers] have
practically been erased.”).
65 See Mutual Fund Investors Letter (“[The SEC] should… subject broker-dealers to the Advisers Act when
they are providing personalized investment advice about securities on an ongoing basis… The term ‘solely
incidental’ should be interpreted narrowly and only include personalized investment advice that is one-
time, temporary, or limited in scope.”).
66 See IAA Letter; Pickard Letter.

20
monitor67 a retail customer’s account on a periodic basis for purposes of providing buy, sell, or
hold recommendations may still be considered to provide advice in connection with and
reasonably related to effecting securities transactions.68 In contrast, when a broker-dealer,
voluntarily and without any agreement with the customer, reviews the holdings in a retail
customer’s account for the purposes of determining whether to provide a recommendation to the
customer—and, if applicable, contacts that customer to provide a recommendation based on that
voluntary review—the broker-dealer’s actions are in connection with and reasonably related to
the broker-dealer’s primary business of effecting securities transactions. Absent an agreement
with the customer (which would be required to be disclosed pursuant to Regulation Best
Interest), we do not consider this voluntary review to be “account monitoring.”69
We decline to delineate every circumstance where agreed-upon monitoring is and is not
solely incidental to a broker-dealer’s brokerage business. Broker-dealers may consider adopting
policies and procedures that, if followed, would help demonstrate that any agreed-upon
monitoring is in connection with and reasonably related to the broker-dealer’s primary business
67 The guidance in this section applies when a broker-dealer agrees to monitor a customer’s account. See Reg.
BI Adoption, supra footnote 6, at section II.B.2 for a discussion of what constitutes such an agreement.
68 See id. Monitoring agreed to by the broker-dealer would result in a recommendation to purchase, sell, or
hold a security each time the agreed-to monitoring occurs and would be covered by Regulation Best
Interest. See id. (“For example, if a broker-dealer agrees to monitor the retail customer’s account on a
quarterly basis, the quarterly review and each resulting recommendation to purchase, sell, or hold, will be a
recommendation subject to Regulation Best Interest.”).
In agreeing to provide any monitoring services, broker-dealers should also consider that a broker-dealer
that separately contracts or charges a separate fee for advisory services is providing investment advice that
is inconsistent with the broker-dealer exclusion. See, e.g., 2005 Adopting Release, supra footnote 17.
Broker-dealers should also consider that, even where such monitoring is consistent with the solely
incidental prong, the broker-dealer must also receive no special compensation for the activity to be eligible
for the broker-dealer exclusion. Broker-dealers receive special compensation where there is a clearly
definable charge for investment advice. See Advisers Act Release No. 626, supra footnote 51; see also
Advisers Act Release No. 2, supra footnote 2; 2007 Proposing Release, supra footnote 17 (describing this
interpretation as the Commission’s “longstanding view”).
69 See Reg. BI Adoption, supra footnote 6, at section II.B.2.b. Any recommendation made to the retail
customer as a result of such voluntary review would be subject to Regulation Best Interest. See id.

21
of effecting securities transactions. For example, broker-dealers may include in their policies
and procedures that a registered representative may agree to monitor a customer’s account at
specific time frames (e.g., quarterly) for the purpose of determining whether to provide a buy,
sell, or hold recommendation to the customer.70 However, such policies and procedures should
not permit a broker-dealer to agree to monitor a customer account in a manner that in effect
results in the provision of advisory services that are not in connection with or reasonably related
to the broker-dealer’s primary business of effecting securities transactions, such as providing
continuous monitoring.71 Additionally, dually registered firms may similarly consider adopting
policies and procedures that distinguish the level and type of monitoring in advisory and
brokerage accounts.72
The Commission will consider further comment on its interpretation of the solely
incidental prong of the broker-dealer exclusion and its application to certain brokerage activities
70 As noted in the Reg. BI Adoption, and consistent with the relationship summary adopted in the
Relationship Summary Adoption, the scope and frequency of a broker-dealer’s monitoring is a material fact
relating to the type and scope of services provided to a retail customer and thus is required to be disclosed
under Regulation Best Interest. See id. at section II.B.2; cf. Relationship Summary Adoption, supra
footnote 6. A broker-dealer disclosing to a customer that the broker-dealer will provide monitoring
constitutes an agreement to monitor. See supra footnote 67.
71 The two examples of advisory services we discuss in this Release—investment discretion and monitoring—
cannot be viewed and interpreted in isolation. For example, it would not be consistent with the solely
incidental prong for a broker-dealer to exercise unlimited investment discretion over a customer account
even if its monitoring activities do comport with the solely incidental prong. Thus, any policies and
procedures that a broker-dealer adopts to ensure that the broker-dealer’s activities are in connection with
and reasonably related to the broker-dealer’s primary business of effecting securities transactions similarly
should not grant the broker-dealer the ability or authority to buy and sell securities on behalf of a customer
as part of periodic account monitoring, except in circumstances of temporary or limited discretion that
would be consistent with the solely incidental prong, as discussed above.
72 In the Final Fiduciary Interpretation, we note that investment advisers may consider whether written
policies and procedures relating to monitoring would be appropriate under Advisers Act rule 206(4)-7. See
Final Fiduciary Interpretation, supra footnote 6, at section II.B.3.
Additionally, the Reg. BI Adoption confirms 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. See Reg. BI Adoption, supra footnote 6, at section II.B.3.d.
Determining the capacity in which a dual registrant is making a recommendation is a facts and
circumstances test. See id.

22
to evaluate whether additional guidance might be appropriate in the future. Based on any
comments received, the Commission may, but need not, supplement this interpretation.
III. 	E CONOMIC C ONSIDERATIONS
The Commission’s interpretation above is intended to advise the public of its
understanding of the solely incidental prong of the broker-dealer exclusion. The interpretation
does not itself create any new legal obligations for broker-dealers. Nonetheless, the Commission
recognizes that to the extent a broker-dealer’s practices are not consistent with this interpretation
of the solely incidental prong, the interpretation could have potential economic effects. We
discuss these effects below.
A. Background
The Commission’s interpretation regarding the solely incidental prong of the broker-
dealer exclusion would affect broker-dealers and their associated persons as well as the
customers of those broker-dealers, and the market for financial advice more broadly.73 As of
December 2018, there were approximately 3,764 registered broker-dealers with over 140 million
customer accounts. In total, these broker-dealers have over $4.3 trillion in total assets, which are
total broker-dealer assets as reported on Form X-17a-5.74 Of the broker-dealers registered with
the Commission as of December 2018, 363 broker-dealers were dually registered with the
Commission as investment advisers.75 Dual registrant firms hold over 90 million (63%) of the
73 See Relationship Summary Adoption, supra footnote 6, at section IV.B (discussing the market for financial
advice generally).
74 Assets are estimated by Total Assets (allowable and non-allowable) from Part II of the FOCUS filings
(Form X-17A-5 Part II, available at https://www.sec.gov/files/formx-17a-5_2.pdf) and correspond to
balance sheet total assets for the broker-dealer. The Commission does not have an estimate of the total
amount of customer assets for broker-dealers. We estimate broker-dealer size from the total balance sheet
assets as described above.
75 For purposes of this analysis, a dual registrant is any firm that is dually registered with the Commission as
an investment adviser and a broker-dealer. Because this number does not include the number of broker-

23
overall 140 million customer accounts held by broker dealers.76 As part of the Reg. BI Proposal,
we requested data and other information related to the nature and magnitude of discretionary
services offered by broker-dealers,77 but did not receive any data or information to inform our
analysis of potential economic effects stemming from this interpretation.
B. Potential Economic Effects
Broker-dealers currently incur ongoing costs related to compliance with their legal and
regulatory obligations, including costs related to understanding their practices and structuring
their practices to be consistent with the solely incidental prong of the broker-dealer exclusion.
This interpretation generally confirms the scope of the solely incidental prong of the broker-
dealer exclusion.
Generally, we believe that few, if any, broker-dealers take the view that they act
consistently with the solely incidental prong with respect to any accounts over which the broker-
dealer exercises more than temporary or limited investment discretion.78 As with other
circumstances in which the Commission speaks to the legal obligations of regulated entities, we
dealers who are also registered as state investment advisers, the number undercounts the full number of
broker-dealers that operate in both capacities.
76 Some broker-dealers may be affiliated with investment advisers without being dually registered. From
Question 10 on Form BD, 2,098 broker-dealers report that directly or indirectly, they either control, are
controlled by, or under common control with an entity that is engaged in the securities or investment
advisory business. Comparatively, 2,691 (19.57%) SEC-registered investment advisers report an affiliate
that is a broker-dealer in Section 7A of Schedule D of Form ADV, including 1,916 SEC-registered
investment advisers that report an affiliate that is a registered broker-dealer. Approximately 74% of total
assets under management of investment advisers are managed by these 2,691 investment advisers.
77 See Reg. BI Proposal, supra footnote 3.
78 See Comment Letter of UBS (noting that broker-dealers have existing arrangements where they exercise
temporary or limited discretion, such as discretion as to time and price, and that those types of discretion
“do not present the sort of risks about which the SEC is concerned with respect to the exercise of unfettered
discretion”) (emphasis added); SIFMA Letter (noting that there are instances in which temporary or limited
discretion, such as discretion as to prices at which securities can be purchased, does not have the
supervisory or managerial character of the investment discretion warranting the protections of the Advisers
Act).

24
acknowledge that affected firms, including those whose practices are consistent with the
Commission’s interpretation, incur costs to evaluate the Commission’s interpretation and assess
its applicability to them. Further, to the extent certain broker-dealers currently understand the
scope of permissible monitoring or other permissible advisory activities under the solely
incidental prong to be different from what is set forth in this interpretation, there could be some
economic effects.79
This interpretation may produce economic effects to the extent that it causes any broker-
dealers to recognize that their practices are inconsistent with the solely incidental prong and to
adjust their practices to make them consistent. In particular, broker-dealers that have interpreted
the solely incidental prong to conduct more advisory activities than this interpretation permits
may choose to no longer provide such services to customers. This could result in a loss of
certain customers, a reduction in certain business activities, and could preclude those broker-
dealers from further developing certain services for their customers, except to the extent those
broker-dealers are dually registered firms and their customers are also advisory clients. This
may, in turn, result in decreased competition in the market for certain services, increased fees for
those services, or a diminished number of broker-dealers offering commission-based services to
investors.80
79 The above application of our interpretation of the solely incidental prong to the exercise of investment
discretion is generally consistent with the position taken in the 2005 Adopting Release and preliminarily
taken in the 2007 Proposing Release. We believe that many broker-dealers changed their practices with
respect to investment discretion in light of those releases, and thus those practices likely are consistent with
our interpretation of the solely incidental prong.
80 For example, to the extent that broker-dealers respond to the interpretation by limiting the levels of
discretion that they provide for their customers, execution quality (including the execution price) may be
affected due to the delays encountered when the broker-dealer must contact a customer to proceed with a
transaction.

25
To the extent any broker-dealers have been providing advisory services beyond the scope
of this interpretation, their customers may receive fewer advisory services if these broker-dealers
choose not to register as investment advisers and adjust their business practices in light of this
interpretation. To the extent that this interpretation would lead to a decline in the supply of
certain services offered by broker-dealers (or a decline in broker-dealers offering services to
particular customers), it could reduce the efficiency of portfolio construction for those investors
who might otherwise benefit from broker-dealers providing investment advice with respect to
their account and would find similar advice from investment advisers to be too costly or
unattainable (e.g., due to account minimum requirements). For example, certain broker-dealers
may incur costs to adopt or revise policies and procedures to ensure that the account monitoring
that they may agree to provide their customers is consistent with this interpretation and may
choose instead to stop offering such monitoring services. Further, to the extent that any broker-
dealers determine that their services are not consistent with this interpretation, they may choose
to register as investment advisers with the Commission, or one or more states, as applicable.
Such broker-dealers would bear costs in choosing to register as investment advisers to continue
providing those services, and their clients may face higher fees as a result. Alternatively, broker-
dealers that have investment adviser affiliates may seek to place existing customers in advisory
accounts instead of brokerage accounts.
Broker-dealers that determine they must change business practices as a result of this
interpretation will choose their responses based on their circumstances. For example, if broker-
dealers with affiliated advisers are able to utilize their existing regulatory infrastructure and
compliance policies and procedures to account for activities that are inconsistent with the solely
incidental exclusion they may face lower costs associated with migration of brokerage accounts

26
and activities to investment advisory accounts. By contrast, we expect the costs of regulatory
registration and compliance to be greater for any standalone broker-dealers that choose to
become registered investment advisers, as they are more likely to need to undertake new
systems, procedures, and policies.
To the extent that broker-dealers choose to discontinue providing certain services,
register as investment advisers, or encourage migration of customer’s brokerage accounts to
advisory accounts of affiliates, this interpretation could result in a shift in the demand for the
services of different types of financial service providers, decreasing the demand for services of
broker-dealers and increasing the demand for the services of investment advisers.81
This interpretation may also produce some overall economic effects to the extent that it
causes any broker-dealers that to date have avoided performing limited discretion and other
activities to recognize that they may perform such activities consistent with the solely incidental
prong of the broker-dealer exclusion. Such broker-dealers may respond to this interpretation by
increasing the amount of limited discretionary services or monitoring services that they agree to
provide to their customers. Investors that have established relationships with such broker-dealers
may benefit from more efficient access to these services and may demand these services from
broker-dealers rather than becoming clients of investment advisers. While additional provision
of these services by broker-dealers also raises the risk of regulatory arbitrage because similar
activities would be regulated under different regimes, we believe this risk will be mitigated by
81 To the extent this interpretation results in altered compliance costs for standalone broker-dealers, non-
affected standalone broker-dealers (i.e., those standalone broker-dealers that already are in compliance with
the solely incidental prong as we have interpreted it), dual registrants, investment advisers, and other
financial intermediaries that are not required to register as investment advisers (such as banks, trust
companies, insurance companies, commodity trading advisers, and municipal advisors) may to a varying
degree gain business at these affected broker-dealers’ expense.

27
the adoption of rules that enhance the standard of conduct that applies to broker-dealer
recommendations.
List of Subjects in 17 CFR Part 276
Securities.
Amendments to the Code of Federal Regulations
For the reasons set out above, the Commission is amending title 17, chapter II of the
Code of Federal Regulations as set forth below:
PART 276–INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT
ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS
THEREUNDER
1. 	Part 276 is amended by adding Release No. IA–5249 and the release date of June
5, 2019, to the end of the list of interpretive releases to read as follows:
Subject 	Release No. 	Date 	Fed. Reg. Vol. and Page
* 	*
Commission Interpretation
Regarding the Solely
Incidental Prong of the
Broker-Dealer Exclusion
from the Definition of
Investment Adviser
*
IA-5249
* 	*
June 5, 2019
* 	*
[Insert FR Volume
Number] FR [Insert FR
Page Number]
By the Commission.

28
Dated: June 5, 2019
Vanessa A. Countryman,
Acting Secretary.