Come June of next year, brokers will need to start showing customers in side-by-side comparisons that they do not monitor their accounts, while advisors and advisor reps do.

The disclosure is part of the Securities and Exchange Commission’s Regulation Best Interest Form CRS (customer relationship survey), which will go live on June 30, 2020. Form CRS is designed to illustrate to investors the differences in the relationships and services they get and how they’ll pay for them.

What the form will clearly communicate to brokerage customers is that they will be receiving little or no account monitoring for the commissions they pay, in sharp contrast to the monitoring and advice they’ll get from advisors for a fee, according to broker-dealer executives and regulators who spoke at Finra’s Best Interest conference in Washington, DC earlier this week. As a result, firms are beginning to require their reps to take the Series 65 exam so they can offer fee-based advisory products.

“I think it will be more difficult for a representative to sell a commission-based account with Form CRS in front of them,” said Robert Molinari, Senior Vice President and Chief Regulatory Affairs Officer for Commonwealth Financial Network, who sat on a panel at Finra’s Reg BI conference earlier this week.

“Our Form CRS will be quite clear that monitoring services will be available on the fee-side not on the commission side,” Molinari added.

Mark Cresap, President of Cresap, Inc., a broker-dealer and registered investment advisor with 25 registered reps, agreed the form will create a “strong incentive” for his reps to recommend fee-based accounts.

“Our CRS [for brokers] will say we do not have the duty to monitor,” Cresap said. “If you commit to monitor you have to schedule a number of meetings. The requirements are a lot sharper than what’s in the Adviser’s Act. This, I think will cause reps to rethink commission-based accounts because of the duties it imposes or [requires reps to] disavow without jeopardizing relationship with client.”

Steve Bee, Director of Home Office Compliance at Edward Jones said: “We still have $800 billion in brokerage assets and we don’t think that’s going away any time soon and we think it’s good for clients to be able to work the way they believe works best for them.

“That said, I do think the trend is toward fee based,” Bee added, citing SEC and state securities regulation he said make it easier to offer fee-based accounts.

“There are also client driven trends. many clients prefer to work on fee basis. Asking advisors to do so much as a duty for clients, at some point they need to be paid for that value,” Bee said.

Cresap said he “hopes” the industry is able to retain a commission-based model “because it is my understanding that fee-based clients pay more. It is an important option that we don’t want to take away from clients. Everything I’ve seen is pushing people toward fee base. That is not always cheaper for clients.”

Molinari said Commonwealth’s assets are approximately 80% fee-based, “but it is important to preserve both brokerage and advisory services.”

To be on the safe side of industry and regulatory trends, broker-dealer executives said they will be applying pressure on reps to get their Series 65 license so they can offer fee-based advisory accounts by June 30.

Ninety-eight percent are already investment advisor reps. The rest have until June 30 to take series 65 and become investment advisor reps with Commonwealth,” Molinari said.

“Either take the Series 65 before June 30 or you may not use the advisor term. That’s pretty clear,” Cresap said.

Edward Jones’s Bee said: “We kind of forced everyone before [to take Series 65 exam] to use the term financial advisor, so we won’t have the same issue.”

“Sounds like it’s good time for Series 65 prep firms,” added Joseph Savage, Finra’s Vice President and Counsel in the Office of Regulatory Analysis.

Savage asked the executives how they anticipate handling disclosure in situations where investors have both commission- and fee-based accounts.

“I think this is one of the most difficult aspects of rule,” Bee said. “It allows for two models and many, many, many clients have both. We are building a process to reinforce with our financial advisors to have these conversations with customers, to discuss what you’re doing in and reinforce fees and costs with accounts.”

Bee said the two toughest conflict of interest discussions that brokers will need to have with customers are around differential compensation and the fact that the more trades a broker makes the more she or he will be compensation.

“We all have concerns, but what we don’t know is how [Reg BI] this will be enforced,” added Cresap. If regulators come in guns blazing it will be very difficult to maintain commission-based accounts. How will regulators approach this in exams, how will it play out in arbitration and with plaintiff lawyers? Until that plays out, people will be frozen,” he added.