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.