Ok. So, we finally have Regulation Best Interest and its subsequent rules in place. The final rule has an effective date 60 days after it is published in the Federal Register, but don’t panic yet. Included in this will be a compliance period, giving firms until June 30, 2020 to effectively transition into accordance with the rule. Here’s what advisors should do and not do in order to be in compliance with the new rule.
- Disclose, Disclose, Disclose. Form CRS goes a long way to provide pertinent information to investors about the nature of the relationship they can expect to have with you, but transparency starts and ends with you. Disclose in writing, electronically and in-person the nature of your relationship with the investor, expectations and conflicts of interest. If there are additional matters that could require further clarification in the future, address it now.
- Train and prepare for Reg BI’s implementation. The more prepared your business is to operate in a Reg BI-compliant world, the less hiccups there will be along the way. SEC Chairman Jay Clayton said during his opening remarks of the Reg BI vote that the Commission would work to establish committees to assist firms with implementation of the adopted rules. Clayton added that the SEC will also roll out a Main Street investor education campaign, aimed at helping investors understand the difference between broker-dealers and investment advisors.
- Understand your title, licenses and the duties therein. It sounds self-explanatory, but it’s worth evaluating your own role and the licenses you carry and the obligations that come with those roles under the new rule. While the SEC did drop its planned restriction of the title adviser/advisor, certain rules and exemptions apply to those with certain titles I.e. dual-registrants. Under Reg BI, dual-registrants are only subject to the fiduciary rule in the Investment Adviser Act when acting as an advisor.
- Be familiar with state best-interest standards. Many states have already taken steps to introduce or have already enacted best-interest standards at the state level. Make sure you and your firm complies with both. This means reading the legislation and understanding what it means for your day-to-day conduct is crucial.
- Attempt to waive or bypass compliance with Reg BI. Your compliance with the new rule cannot be waived, nor can an investor agree to waive their protections under Reg BI.
- Expect Reg BI to be thrown out. While the best interest standard will face some legal challenges, including preemption with state-enacted laws, don’t anticipate the rule’s downfall prematurely. Odds are, another rule would likely fill its place and it won’t keep you or your firm from having to be compliant with the standards contained in the rule.
AdvisorNews Managing Editor Cassie Miller may be reached at cassie.miller@Adnewsfeedback.com. Cassie has an extensive background in magazine writing, editing and design. Follow her on Twitter @ANCassieM.