June 26, 2019
Regulation Best Interest: What You Should Know
On June 5, 2019, the Securities and Exchange Commission adopted Regulation Best Interest (BI) which is intended to raise the standard of conduct for broker-dealers working with retail customers. The regulation had been under consideration since April 2018 and was passed by the Commission in a three-to-one vote. There are several major requirements of the rule:
The Commission hopes to better regulate relationships among broker-dealers and their customers and to raise ethical expectations to meet those already applied to investment advisers. The objective is to further entitle retail customers to reliable recommendations which do not prioritize the interests of their financial professionals, and to clarify the role of the broker-dealer representative.
For example, brokerage firm sales professionals will no longer be able to use the title “advisor” or “adviser” unless the firm is dually registered as an investment adviser or they are supervised by an investment adviser.
Another example is allowing the financial planning service, provided by some registered sales professionals who are Certified Financial Planners (CFPs), to continue through a brokerage firm. Now, if a brokerage professional is a CFP, they are also subject to a code of ethics and standards of conduct that was recently revised to require they act as a fiduciary. These updates go into effect in October 2019.
Regulation BI was passed in a package which includes Form CRS, clarification of fiduciary duty guidelines, and a new interpretation of the “solely incidental” prong of the Advisers Act.
WHAT DOES THIS MEAN FOR ME?
Broker-dealers must comply with Regulation BI by June 30, 2020. Compliance will consist of four elements:
If your firm is affected by Regulation BI, Fairview is here to assist you with coming into compliance. We are available to answer questions about Regulation BI, Form CRS, and new interpretations released by the Commission.