Fintechs zero in on Reg BI as deadline looms

Technology providers are deploying tools to help advisers brace for new regulatory requirements

The deadline for the Securities and Exchange Commission’s Regulation Best Interest is just seven days away and fintechs have been responding with tech tools to help get their broker-dealer and adviser clientele ready to comply.

Since the SEC announced in June 2019 the package of rules designed to enhance the transparency of retail investors’ relationships with investment advisers and broker-dealers, it has since been the job of tech providers to “serve as an ally” to advisers, wrote Redtail Technology’s sales director, David Mehlhorn, in an email.

Reg BI has received criticism from some tech-driven adviser platforms such as the XY Planning Network, which sued the SEC for creating what they say is an unfair competitive advantage for broker-dealers. Still, XYPN built a process to help its network of advisers comply with Form CRS, co-founder and CEO Alan Moore wrote in an email.

“We will hopefully find out in the next couple of weeks if it was money well spent, or if the rules get rolled back with our lawsuit,” he said.

With the deadline looming, fellow technology platforms including Broadridge, InvestorCom, Morningstar, RIA in a Box and Riskalyze have deployed tools or programs to support the upcoming Reg BI deadline.

DATA DEALS

Integrated technology tools are a trending interest among clients, Morningstar’s Head of Advisor Solutions Matt Radgowski said in an interview.

In fact, Morningstar inked a three-year data deal with compliance software platform InvestorCOM, the companies announced this month. Morningstar will funnel data on more than 300,000 investment products into InvestorCOM’s compliance tools specifically built to help broker-dealers meet the June 30 regulatory requirements.

Those tools include ShelfMonitor, a software that alerts broker-dealers to material changes on their product shelf that may affect investors’ portfolios, and PeerCompare, a data analytic software that advisers use to generate and disclose a set of reasonable product alternatives for the investor, according to InvestorCOM’s website.

InvestorCOM builds compliance workflows, which serve as an attractive partnership for Morningstar to leverage its massive data infrastructure, Radgowski said. “We could build the best investment processes for Reg BI, but if it can’t be repeated by the right representatives and can’t be documented, then it’s really all for naught,” he said.

Morningstar, too, developed a proprietary “best interest investment recommendation tool” that allows advisers to compare their recommended investment relative to a set of reasonably available alternatives that Morningstar helps them identify, Radgowski said. The company also created a series of reports that document that comparison on the basis of performance, risk and cost, which is “obviously important to compliance workflows or storage systems such that if advisers are ever called upon to provide those in an examination or for any other issues,” he said.

TACKLING THE CRM

CRM platform Redtail, for one, has a three-pronged approach for advisers scouting technology that will support Reg BI, Mehlhorn said. The first step is simple: “Take advantage of the tools already at your disposal,” he said.

Within Redtail’s CRM, the fintech added two new fields at the individual account level where advisers can track both the date they sent a Form CRS (client relationship summary) in relation to a specific recommendation and the date they received that form back, signed by the client. Additionally, one of the standard fiduciary reports in Redtail now includes columns displaying these two new Reg BI date fields.

“This means advisors can report on Form CRS data as well as take individual or bulk actions with those clients in the report,” Mehlhorn said.

As pieces of advice, Retail suggests advisers should look into available tech integrations to spend less time on data entry and retrieval, Mehlhorn said. Also, “document, document, document,” he said. “The more you document about your clients and your interactions with them, the more you can be certain you are offering advice that is in their best interest.”

FOCUS ON FORM CRS

While Reg BI is targeted at broker-dealers, RIA in a Box President GJ King said comments from SEC Chairman Jay Clayton make it clear that investment advisers also need to pay close attention to their fiduciary obligation as it relates to rollover investment recommendations.

“Advisers still need to be more attuned than ever to acting in a client’s best interest as it relates to rollover investment recommendations as that is likely to be a particular area of regulatory focus not just for broker-dealers but for investment advisers as well,” King wrote in an email.

Another software platform, Riskalyze, announced June 17 the launch of four new analytics and due diligence tools to allow advisers to build, trade, and document portfolios in the best interests of investors. The tools include report attachments, new detailed portfolio stats, tax intelligent trading and the brand new Enterprise Cloud portal.

The new tool is currently being deployed at six enterprise firms, and will be rolled out in phases to eligible enterprise clients, the company noted.

For Broadridge Financial Solutions, the fintech simply re-positioned an existing product called SmartAdvisor that is currently used by 80,000 advisers in Canada and rebranded as RegBI HUB for the U.S., Broadridge Senior Vice President, Retirement Tim Slavin wrote in an email.

The solution allows firms and advisors to communicate and distribute Form CRS both in bulk and specifically to new clients and prospects while tracking delivery details for audit purposes. Broadridge’s fiduciary education business, Fi360, also offers Reg BI training modules.

NEW OPPORTUNITIES

Ultimately, new regulations like Reg BI can serve as a “step in the right direction” to close the gap between full fiduciary advisory relationship and what was just suitability, Morningstar’s Radgowski said.

“Reg BI’s impact will depend on how the examinations and enforcement come about after June 30, but it will encourage more individuals that are acting in a brokerage capacity to at least consider whether a full fiduciary advisory relationship is more beneficial to their investors and potentially make that change.”

Reg BI could open up opportunities for advisers and firms across the country to do more than just say they provide best interest recommendations to their clients, InvestCOM’s Director of Business Development John Morgan wrote in an email.

“Advisers can prove it when it matters most … during an upcoming regulatory exam or when a client complaint rolls through the door the next time there is a significant market correction. Thus protecting advisers, and in turn the firm’s most valuable asset — their reputation.”