Why complying with Reg BI can’t wait for the last minute
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Webcast panelists recommend starting what could be an expensive and time-consuming process sooner than later.
The good news is, the Securities and Exchange Commission’s upcoming Regulation Best Interest is not expected to dramatically change most daily business activities for financial advisers and registered representatives.
The bad news is, advisers and broker-dealer reps will still need to prepare for Reg BI, and that preparation might be expensive and time-consuming.
“The rule creates a pretty heavy lift for compliance and legal departments, but for a lot of registered reps, I’m not sure the Best Interest standard is going to change a lot of what they do day to day,” said Kurt Wolfe, a compliance and enforcement specialist at the law firm of Troutman Sanders.
Mr. Wolfe joined Karen Barr, president and chief executive of the Investment Adviser Association, and Bradford Campbell, partner at Drinker Biddle & Reath, on an InvestmentNews webcast Tuesday that took a deep dive into how Reg BI will affect financial service practitioners when it takes effect June 30.
“As a practical matter, advisers need to review their policies and procedures, and also review their disclosures and advisory agreements,” said Ms. Barr.
Though she’s heard advisers question whether Reg BI is real or if it will ultimately go the way of the Department of Labor’s fiduciary rule, which was vacated by federal appeals court in 2018, Ms. Barr has been telling association members that they shouldn’t stop working on it.
Mr. Campbell echoed a similar sentiment regarding preparing for Reg BI.
“I agree with that, and this is true for broker-dealers as well,” he said. “You can’t wait until June 30. There are a lot of policies and procedures that have to be developed. Everyone has to work and operate as if Reg BI is going to be alive.”
Asked about the potential cost of implementing and adjusting Reg BI, the panel wasn’t specific beyond saying it will depend on the size of the firm.
“Everyone will bear cost, but it will depend significantly on the size and complexity of the firm,” said Ms. Barr.
Mr. Wolfe estimated that the cost could be greater for broker-dealers than for investment advisers.
“On the broker-dealer side, there is more in terms of conducting some kind of gap analysis and types of training,” he said. “I can imagine a little cottage industry popping up to help firms manage this.”
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Meanwhile, a major potential turn in the road toward the implementation of Reg BI is the upcoming U.S. presidential election, which could send the SEC’s new rule back to the drawing board, or at least to the back burner.
“It rubs some salt in the wound that we still have this regulatory uncertainty on what will come next,” said Mr. Campbell. “One can assume a President [Elizabeth] Warren would not continue to have Reg BI. But, unfortunately, there’s no remedy for that. Firms have to spend the money on compliance.”
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