If you’re an independent financial advisor, there’s really no way to know exactly how the SEC will enforce their new Regulation Best Interest (Reg BI) rules, which go into effect June 30, 2020. However, you can still do your best to prepare for the regulatory change.
In the following article, I’ll discuss some tips and resources you can use to comply with the rules.
Federal Register Release: Regulation Best Interest: The Broker-Dealer Standard of Conduct
If you don’t already know, the Federal Register is the official journal of the United States Federal Government. It’s published daily and includes new federal agency rules, proposed rules, and public notices.
The July 12th issue includes the full, 175-page Best Interest Rules. While it’s not exactly light reading, there’s no substitute for going directly to the source when you have a question about the regulation. The issue provides everything you need to know about the rules, including background information, important definitions, and who to reach out to for more information.
For example, if you have a question about the “care obligation” of the rules, you can refer to the Table of Contents, find section III. C. 3.:“Care Obligation” for the original explanation.
Refer to the SEC Small Entity Compliance Guide
Thanks to the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996, federal agencies are required to publish one or more guides to assist small businesses in complying. As such, the SEC published their Regulation Best Interest Small Entity Compliance Guide. This gives you a guide to Reg BI straight from the horse’s mouth, including the following sections: (Sec. 4) What does the Disclosure Obligation require? (Sec. 5) What does the Care Obligation require? (Sec. 8) Record-making and Recordkeeping, etc.
Of course, this guide is only a summarization and explanation, but is not a substitute for the rules themselves.
Download the FINRA checklist
Even though FINRA maintains the ‘suitability standard,’ which is different from the ‘best interest’ standard, the SEC has the ultimate regulatory authority over the securities industry. Because of this, FINRA released a checklist to help advisors prepare for the SEC’s Regulation Best Interest (Reg BI) rules. Along with the Reg BI rules, they also released a checklist to complete a Form CRS, the relationship summary that Investment Advisers and Broker Dealers will be required to provide. You can find the full checklist on FINRA’s website.
In fact, you should bookmark FINRA’s Regulation Best Interest Overview webpage. This page includes a brief summary of the Reg BI rules and a variety of resources that can help.
Attend the FINRA 2019 Regulation Best Interest Conference
FINRA is hosting a one-day conference in Washington, DC on December 18th to help regulators, executives, and industry professionals learn more about the Reg BI rules. The registration fee of $495 is waived for the first two attendees from each FINRA member firm. Non-member firms attendees will pay a registration fee of $1,625.
The conference will include discussions about the Form CRS, Disclosures, Conflict of Interest, Standard of Care Obligations, Issues for Dual Registrants, and more. You can find the full conference agenda here.
Suggested Reading: The SEC’s Interpretation Regarding Standard of Conduct for Investment Advisers
In the same Federal Register that the Best Interest Rules are listed is the SEC’s interpretation of the standard of conduct for investment advisors under the Investment Advisers Act of 1940. If nothing else, this document can help you understand the context of the Reg BI rules and the implications of requiring a best interest obligation for broker dealers. This can help you understand the difference (or lack-there-of) between the standard of conduct for broker dealers and investment advisers.
[WHY THE SEC IS BEING SUED OVER REG BI]
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https://www.sec.gov/news/press-release/2019-89
https://www.finra.org/rules-guidance/key-topics/regulation-best-interest
https://www.congress.gov/bill/104th-congress/senate-bill/942
