The SEC's 2022–2023 Staff Bulletins on Care Obligations, Conflicts of Interest, and Account Recommendations establish specific, documented standards that most advisory practices do not currently satisfy. This 105-page report identifies the gap — and provides a framework to close it before an examiner, an arbitration panel, or a plaintiff's attorney does it for you.
If a client loses 40% of their retirement savings in a security you recommended, and the client — or their attorney, or an SEC examiner — asks you to produce the documented analysis that supported that recommendation, what will you show them?
The SEC's April 2023 Care Obligations Bulletin requires that you understand "the expected returns, expected payout rates, and potential losses" and "likely performance in a variety of market and economic conditions" before recommending any investment. The August 2022 Conflicts Bulletin states that the absence of records documenting how conflicts are addressed makes it "difficult for an investment adviser to demonstrate how it complies with its fiduciary obligations." The March 2022 Account Recommendations Bulletin requires that the basis for recommendations be documented — and notes that the Commission has already pursued enforcement actions against advisors who failed to consider lower-cost alternatives.
These are not proposed rules. They are published interpretations of your existing obligations. The question is not whether the standard will change. The question is whether your current practice satisfies it.
The SEC's 2022 Conflicts Bulletin establishes a principle that applies across every aspect of the duty of care: the absence of records is not a neutral fact. It is evidence that the analysis was not performed. If your file contains only a risk tolerance questionnaire and a brokerage statement, that file does not demonstrate compliance. It demonstrates the opposite.
The 2023 Care Obligations Bulletin requires understanding "potential losses" before recommending. If the answer is no, the care obligation has not been met as the SEC has defined it.
The SEC requires consideration of "reasonably available alternatives." A 70-year-old retiree who needs $50,000 per year in income can obtain $80,000 from a laddered Treasury portfolio at current yields with zero principal risk. If you have not documented why equities are superior to that alternative for that client, you have a gap.
The SEC's fiduciary duty is continuous. If you have no predefined criteria — no valuation threshold, no balance sheet trigger, no conditions under which you would act — you have no mechanism to fulfill the ongoing monitoring obligation.
The SEC states that financial professionals "remain responsible for personally understanding an investment" before recommending it. Broker-dealer analysts are not fiduciaries. They owe no duty of care to your clients. Delegating the monitoring function to non-fiduciary sources does not fulfill the continuous duty of care.
The August 2022 Conflicts Bulletin acknowledges this conflict as universal and states that disclosure alone does not resolve it. If your file does not contain documentation of how this conflict is managed — beyond the disclosure in your ADV — the SEC's own language says that is a compliance gap.
The report provides a detailed framework for answering each of these questions — including the 10 specific tests every fiduciary should apply to every holding.
Request the ReportThe following companies were among the most widely recommended and most widely held securities in America during the periods shown. Every one of them was a dominant, growing business. And every one of them delivered zero or negative returns — for periods lasting up to 25 years — because the valuation at the time of purchase was too high.
| Company | Period | Revenue Growth | Stock Return | P/S Compression |
|---|---|---|---|---|
| IBM | 1967–1993 | +2,800% | Negative real return (25 yrs) | ~60x → ~10x P/E |
| Microsoft | 1999–2016 | +310% | −1% | 30.9x → 5.4x |
| NVIDIA | 2002–2015 | +339% | +5% total | 9.5x → 2.3x |
| Amazon | 1999–2010 | +3,413% | +4% total | 35.9x → 1.7x |
| Pfizer | 1999–2011 | +415% | −65% | 12.6x → 1.9x |
| Tesla | 2014–2019 | +1,022% | −26% | 15.4x → 1.5x |
| Walmart | 1999–2017 | +214% | −1% | 2.0x → 0.4x |
| PayPal | 2021–2026 | +39% | −87% | 15.1x → 1.1x |
The mechanism in every case was valuation compression. The business performed. The investor lost money. This pattern is not random. It is measurable, it is recurring, and with the right analytical framework, it is identifiable before the losses occur.
Every modeled scenario projected losses. The stock returned 0% over 17 years.
Every scenario projected gains. The stock rose over 2,000%.
Every scenario again projected losses. The stock lost approximately $1 trillion within months.
Same company. Same framework. The only variable was the price — and the price determined the outcome. An advisor with this framework would have had a documented basis for action.
The full report spans 10 parts and two appendices. The following ten items — drawn from Part X — distill the findings most directly relevant to your practice. Each one references a specific SEC standard, a documented evidentiary finding, or both. If you read nothing else, consider whether your current practice satisfies these ten.
The 2023 Care Obligations Bulletin requires understanding "expected returns, expected payout rates, and potential losses" before recommending any investment. If you cannot produce a documented, quantitative analysis of loss probability for the securities in your clients' portfolios, you have not satisfied this standard.
The SEC has pursued enforcement actions against advisors who recommended higher-cost products when lower-cost alternatives were available. For clients whose primary need is income and capital preservation, Treasury securities, FDIC-insured deposits, and no-load fixed annuities are reasonably available. If you have not documented why equity exposure is superior for each specific client, the care obligation has not been met.
Eight companies documented in the report — Microsoft, IBM, NVIDIA, Amazon, Pfizer, Tesla, Walmart, PayPal — delivered extraordinary business growth while producing years or decades of zero or negative stock returns. The mechanism was always valuation compression. A great company at an extreme price is not a great investment.
If your monitoring process depends on sell-side research, it depends on a system whose economic incentives ensure the critical signal — the signal to reduce or exit a position — will rarely arrive. You need an independent, quantitative monitoring process. Reliance on brokerage research alone does not satisfy the continuous duty of care.
For companies above $100 billion in revenue, no company in history has sustained mid-teens growth for a decade. These are documented base rates from research produced inside Credit Suisse and Morgan Stanley — not opinions. When you accept an analyst's growth projection that defies these base rates, you are not exercising judgment. You are making a statistical error.
For any security, you can reverse-engineer the specific revenue growth, profit margins, and future valuation multiples that must all occur for the current price to be justified. If you have not performed this analysis, you do not know the conditions required for your recommendations to succeed — or the magnitude of loss if those conditions are not met.
An index fund at an elevated valuation carries the same price-you-pay risk as any individual stock — with the additional surrender of all control over concentration, sector weighting, and valuation discipline. If you cannot quantify the probability of loss and demonstrate client-specific suitability for a 30–50% drawdown, you have not exercised due care.
The SEC states that financial professionals "remain responsible for personally understanding an investment" before recommending it. Broker-dealer analysts are not fiduciaries. The defense that "my firm approved the product" does not satisfy the standard.
The AUM fee model creates a structural incentive to remain fully invested regardless of risk conditions. Moving to cash protects the client but reduces your income. The 2022 Conflicts Bulletin requires robust management of this conflict — beyond a line item in your ADV.
You must document: the quantitative process you use to evaluate risk, the conditions that trigger review, the frequency of monitoring, and the basis for concluding that each recommendation is in each specific client's best interest. If no documentation exists, the SEC's own language says that is evidence of non-compliance.
The fundamental problem identified in the report is that investment recommendations are currently based on untestable narratives rather than testable hypotheses. A typical analyst recommendation — "We believe Company X is a Buy due to strong secular tailwinds" — cannot be proven wrong by any observable outcome. If the stock rises, the analyst claims validation. If it falls, the analyst cites "unexpected headwinds" while maintaining the thesis. There is no condition under which the recommendation is refuted.
The philosopher Karl Popper identified this as the hallmark of pseudoscience: a claim that is immunized against refutation is not knowledge. The report proposes that fiduciary recommendations be anchored in testable hypotheses using the "What Must Happen" protocol — a framework that requires the advisor to state, in advance and in writing, the specific conditions under which their thesis fails:
"To achieve a 10% annual return on this stock at this price, the company must grow revenue at X% annually and maintain a P/E ratio of at least Y through [date]." This forces you to articulate what must happen — not what you hope will happen.
Has any company of comparable size ever achieved the growth rate the current price implies? If the required outcome has occurred in fewer than 1 in 10 comparable historical cases, the recommendation should be flagged as speculative.
"If the P/S ratio contracts to the 20-year median, the thesis fails and the expected loss is X%." This creates a predefined trigger — a documented exit criterion that prevents the endless rationalization that characterizes failed investment positions.
This is not a demand for omniscience. It is a demand for intellectual honesty about what is already knowable from publicly available data and documented historical patterns. The tools to implement this framework exist today.
This report is not an indictment of individual advisors. Most RIAs care about their clients and entered the profession to help people. The problem is systemic — a regulatory framework that articulates a standard without requiring the tools to meet it, an information supply chain compromised by structural conflicts, and an examination rate that leaves 85% of firms unreviewed in any given year.
But the standard is tightening. The SEC's 2022–2023 Bulletins are the most specific operational guidance the Commission has published. Plaintiff's attorneys are reading them. Arbitration panels are citing them. The advisors who adopt quantitative, documented risk assessment now — before enforcement catches up — will be the ones with a defensible record when questions are asked.
An advisor who can produce documented evidence that they measured the probability of loss, compared equity exposure to lower-risk alternatives, monitored holdings with independent quantitative tools, and defined predefined conditions for review — that advisor has a file that demonstrates compliance. The advisor whose file contains only a risk questionnaire and a brokerage statement does not.
The question is not whether you as an individual advisor are doing your best. The question is whether the process you follow is capable of producing the outcomes the standard requires. If the process cannot produce documented risk analysis, it cannot produce compliance — regardless of the intentions behind it.
"Eighty-five percent of the reasons for failure are deficiencies in the systems and process rather than the employee. The role of management is to change the process rather than badgering individuals to do better." — W. Edwards Deming, Out of the Crisis
Quantifying the Standard of Care — 105 pages documenting the SEC's articulated standards, the gap between those standards and current industry practice, and an analytical framework to close it. Includes the 10 tests every fiduciary should apply to every holding.