Dual Registrant

A dually registered professional recommends a fund to a customer who holds both a brokerage account and an advisory account at his firm. She asks whether he is acting as her fiduciary in making this particular recommendation. What must he do?

1. A.Decline to answer, since capacity is settled after the tradeWrong. Capacity is known when the advice is given and cannot be deferred to a post-trade determination.
2. B.Confirm he is a fiduciary because he is registered as oneWrong. Holding both registrations does not make every recommendation an advisory one.
3. C.State the capacity in which he is making this recommendationCorrect. Capacity is a material fact that must be disclosed at or before the time of the recommendation.
4. D.Refer the question to the firm's compliance department in writingWrong. Escalating a straightforward disclosure question does not discharge a duty owed at the moment of the advice.

Why: The Disclosure Obligation expressly requires disclosure of the capacity in which the firm or associated person is acting when a recommendation is made. For a dual registrant serving a customer who holds both account types, capacity is the single most consequential fact, because it decides whether the recommendation is governed by Reg BI or by the Advisers Act fiduciary duty and whether any ongoing duty follows the advice. He must therefore state plainly which role he occupies for this recommendation. If the recommendation concerns the advisory account, the fiduciary standard governs and the duty runs across the relationship rather than stopping at the moment of advice.

A dual registrant recommends the same equity fund twice on one day: once into a customer's brokerage account and once into a different customer's advisory account. How do the two forward-looking duties differ afterwards?

1. A.Both create an ongoing duty to monitor until the position is soldWrong. Only one of the two relationships carries a continuing duty as a matter of course.
2. B.The advisory duty continues; the brokerage one need notCorrect. Fiduciary duty runs across an advisory relationship, while Reg BI is measured at the recommendation.
3. C.Both duties end once the respective confirmations are deliveredWrong. Confirmation delivery closes a transaction record and says nothing about the standard of conduct.
4. D.The brokerage relationship carries the greater ongoing dutyWrong. This inverts the two regimes, since the brokerage obligation is the one keyed to a discrete moment.

Why: Regulation Best Interest imposes its obligations at the time a recommendation is made and does not by itself create a duty to monitor the account afterwards, although a firm that agrees to monitor will be held to that agreement. The Advisers Act fiduciary duty attaches to the advisory relationship as a whole and therefore continues for its duration, which ordinarily includes ongoing review where the adviser occupies a continuing advisory role. The same fund recommended in the two capacities consequently leaves the firm with materially different duties going forward. If the brokerage agreement expressly promised periodic reviews, the firm would be bound by that promise and the gap would narrow.