PLANADVISER - May/June 2020 - 9

Reg BI
Viewpoints
they will need to carefully address more
complex use cases, such as 401(k) rollovers
into individual retirement accounts (IRAs).
Ultimately, Radgowski says, he expects
Reg BI " will require brokers to rethink the
role of the adviser, " meaning the Reg BI
framework may discourage commissionbased
business. As one might expect, some
common practical areas are emerging
where firms face challenges with compliance
assessments, he says.
" For example, it's a difficult balancing
act to decide how much discretion and
flexibility home offices will give to their
outside advisers and representatives, " he
says. " How much control will the home
office maintain in terms of product choices,
client service models, fee structures, etc.?
Who will define what best interest means
for the firm? Creating the customer relationship
summary [CRS] form was just the
first step. Actually, changing workflows
and systems is a lot harder. "
Some states have already moved to
incorporate the federal rulemaking into
their securities law. One is Iowa, which
in mid-May filed an " adopted regulation "
via its insurance division to require
annuity agents to act in the best interest
of their customers. Importantly, the Iowa
regulation now includes a caveat to the
effect that regulated entities that meet
the standards prescribed by Reg BI will
be assumed to be complying with Iowa's
regulation. More progressive states have
foregone including such an exception in
their insurance and brokerage conflict of
interest laws. -John Manganaro
Advice for Stragglers
Morningstar
recently surveyed nearly 100 broker/dealers (B/Ds) and found almost
one-third either were unsure if their firm had or knew it had not taken " any proactive
steps " to ensure its products complied with Regulation Best Interest. For B/Ds that have
been dragging their feet, the Financial Industry Regulatory Authority suggests tackling
the following questions. Any " no " answers should be addressed by June 30.
1 Does your firm have
procedures and training in
place to assess recommendations
using a bestinterest
standard?
2 If your firm and your
associated personnel
agree to provide account
monitoring, do you apply
the best-interest standard
to both explicit and implicit
hold recommendations?
3 Do your firm and your
associated personnel
consider reasonably available
alternatives to the
recommendation?
4 Do your firm and your
associated personnel
apply a best-interest standard
to recommendations
of types of accounts?
5 Do your firm and your
associated personnel
consider the express new
elements of " care, " " skill "
and " costs " when making
recommendations to retail
customers?
6 Does your firm have
policies and procedures
to identify and address
conflicts of interest?
7 Does your firm have
policies and procedures
to provide the disclosures
required by Reg BI?
8 Do your firm and your
registered representatives
guard against excessive
trading, irrespective of
whether the broker/dealer
or associated personnel
" control " the account?
9 Does your firm have
policies and procedures in
place regarding the filing,
updating and delivery of
Form CRS?
No Delay
In explaining the
Securities and Exchange
Commission's rationale
for standing by the June
30 compliance date,
Chairman Jay Clayton
said, " Particularly in times
of uncertainty, investment
professionals should not
put their interests ahead
of the interests of their
clients and customers,
and Reg BI codifies this
fundamental principle. "
Reg BI
Opponents
A coalition of states
and the XY Planning
Network, a group of
fee-only advisers, has
sued the Securities and
Exchange Commission
in a bid to overturn
Regulation Best Interest.
The plaintiffs asked a
federal appeals court
to strike the regulation
down. Michael
Kitces of XY Planning
Network filed lawsuits
claiming, " The SEC has
exceeded its authority
by impermissibly trying
to rewrite the registration
requirements to become
an investment adviser "
and that operating under
a fiduciary standard of
care is paramount.
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