PLANADVISER - September/October 2022 - 27

time and not place his own financial or other interest first.
This general obligation is satisfied only if the brokerage
professional complies with the four component obligations
that Reg BI specifies:
The disclosure obligation demands that brokerage professionals
provide required disclosures before or at the time of
making the recommendation, addressing its merits and the
details of the relationship between the broker and customer;
the care obligation requires that brokerage professionals
exercise reasonable diligence, care and skill in making the
recommendation; the conflict of interest obligation demands
that brokers establish, maintain and enforce written policies
and procedures reasonably designed to address/mitigate
conflicts of interest; and the compliance obligation orders
brokers to establish, maintain and enforce written policies
and procedures designed to achieve compliance with Reg BI.
The panelists noted that Reg BI casts a wide net and
explained that
the determination of whether a broker/
dealer has made a recommendation that triggers applying it
turns on the particular situation's facts and circumstances.
Therefore, whether a recommendation has been made is not
susceptible to a " bright line definition. "
The SEC staffers also noted that factors considered in
determining whether a recommendation has taken place
include whether the communication could be reasonably
viewed as a call to action or likely to influence an investor to
trade a particular security or group of securities. As a rule
of thumb, the more individually tailored the communication
is to an individual or group of customers about a security or
group of securities, the greater the likelihood the communication
may be viewed as a " recommendation. "
Importantly, the speakers said, Reg BI does not apply
to investment advice provided to a retail customer by a
dually registered professional when acting as an investment
adviser. This is true even if the retail customer has a
brokerage relationship with the dual-registrant or the dualregistrant
executes the transaction in a brokerage capacity.
Further, to trigger the best interest standard, a recommendation
need not be positive in nature. That is, an explicit hold
recommendation also triggers Reg BI, as do implicit hold
recommendations that result from agreed-upon account
monitoring between the broker/dealer and retail customer.
The panel pointed to the following practices that firms
may adopt to forestall Reg BI issues: avoiding compensation
thresholds that disproportionately raise compensation
through incremental increases in sales; minimizing compensation
incentives for employees to favor one type of account
or one type of product over another, such as proprietary or
preferred provider products, or comparable products sold
on a principal basis; eliminating compensation incentives
within comparable product lines by, for example, capping the
credit that an associated person may receive across mutual
funds or other comparable products over all providers; and
implementing procedures to monitor recommendations.
The panelists also touched on proposed regulations
regarding money market funds; environmental, social and
governance investments; and cybersecurity. -John Manganaro
Top: Shlomo Benartzi, Behavioral Decision-Making Group at the
UCLA Anderson School of Management, discusses " The Psychology
and Practicality of Retirement Income. " Bottom: Three representatives
from the Securities and Exchange Commission discuss Regulation
Best Interest and other SEC accomplishments and efforts
that are in process.
The Psychology and Practicality
Of Retirement Income
While automated features have transformed the way participants
save for retirement in defined contribution plans, one
author of the features says they are not the answer for decumulation
and creating income in retirement.
Speaker Shlomo Benartzi, co-founder of the Behavioral
Decision-Making Group at the UCLA Anderson School of
Management, said auto-features that harness the power of
participants' inertia to help them save for retirement do not
work to turn DC plan savings into retirement paychecks.
" Over a lifetime, people accumulate assets-and differences, "
said Benartzi, who, along with Nobel laureate Richard
Thaler of the University of Chicago, pioneered the Save More
Tomorrow program to nudge employees to increase their
retirement savings rates gradually over time. " You can't give
the same solutions to such different people. "
Benartzi also cautioned that participants should not be
enrolled into income solutions that are irreversible: Circumstances-including
health and cognitive ability-can change
planadviser.com September-October 2022 | 27
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PLANADVISER - September/October 2022

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