Working to get Reg BI implemented

Open lines of dialogue will be crucial in identifying key issues that are most in need of clarification

Oct 8, 2019 @ 1:03 pm

By Dale Brown

We were very pleased when the SEC's new common standard of care for all advisers, Reg BI, was passed as a formal rule.

While we approved of the rule's approach to protecting investors, improving disclosure and mitigating potential conflicts of interest, we also knew from the start that firms, advisers and regulators would confront complex questions in the process of implementing Reg BI — and that the answers would reshape our industry in important ways.

It is important that we work together to get implementation of Reg BI right so that Main Street investors continue to have access to advice and products that help them achieve their financial goals.

Now that the rubber is beginning to meet the road, it has become clear that maintaining open lines of dialogue between firms, advisers and third-party experts, such as regulatory attorneys, will be crucial in identifying the key Reg BI-related issues that are most in need of clarification or modification.

Just as importantly, it will be vital for regulators to be able to turn to reliable sources within our industry for information on the challenges that are top-of-mind for firms and advisers, and for insight on how Reg BI might impact the existing regulatory framework.

Finra CEO Robert Cook highlighted our role as such as a source as he explained FINRA's own approach to Reg BI implementation during an interview at our recent FSI Forum.

"We're thinking about this in a phased way," Mr. Cook said. "The first phase would be, 'Are there aspects of our rules that need to be clarified or changed now in order to get rid of any perceived or actual obstacles to implementation for Reg BI?'"

"The second phase might well include a wider scope of inquiry," he continued. "What are the rules that were adopted in the absence of a best interest standard that we should revisit now that there is a best interest standard?"

"We would love to get your input on that," Mr. Cook said. "[FSI is] close to the ground on this and you're going to have real insights."

We are pleased to serve as a clearinghouse for key questions in the Reg BI implementation process, and we take this role very seriously.

[Recommended video:Valerie Brown discusses the SEC advice rule and why it should preempt state efforts]

At FSI Forum — and again at our Reg BI Workshop in September — we invited our members and legal partners to discuss some of the issues that have already arisen as they work to comply with the new rule.

Among the topics discussed in depth at these events were:

• How firms can enhance their existing suitability compliance procedures to comply with Reg BI — and the limits of this approach;

• How to develop the infrastructure to supervise recommendations that were not previously subject to the suitability standard, such as account openings;

• The expanded scope of Reg BI's disclosure requirements; and

• Whether Reg BI may require broker-dealers whose advisers provide advisory services through outside RIAs to apply their Reg BI procedures to the recommendations and advice that would historically have been supervised only by the adviser's RIA.

We are pleased to play a key role in maintaining strong lines of open dialogue between our industry and regulators in order to get Reg BI implementation right.

(More:It's time to end 'rulemaking by enforcement')

Dale Brown is president and CEO of the Financial Services Institute.


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