Since before Dodd-Frank became law in 2010, the Financial Services Institute (FSI) has been deeply involved in the mission of defining a consistent standard of care that clarifies financial professionals’ responsibilities across the full spectrum of business models while also safeguarding the interests of Main Street American investors.

The SEC’s Regulation Best Interest (Reg BI) represents a profound and positive step toward that goal. Now that the rule has officially taken effect, investors and financial professionals can move forward with confidence that they are working together under a transparent regulatory framework.

For members of the independent financial services industry, preparing for Reg BI has been a complex endeavor, made even more challenging by the Covid-19 pandemic. On behalf of our members, though, FSI can unequivocally state that we and the firms and advisors we represent are committed to making Reg BI a success.

We are pleased to have played a key role in helping translate our industry’s commitment into action in the lead-up to the new regulation’s implementation. The moment the rule was finalized, we marshalled our resources and brought members together to identify and prepare for potential operational hurdles in the Reg BI implementation process.

Driving Crucial Tactical Dialogue On The Reg BI Rollout
We started with a series of in-person educational events, including dedicated Reg BI workshops at our member gatherings and conferences. We also devoted substantial time to Reg BI-related issues at broader advocacy-focused events, such as our annual Capitol Hill Day in Washington, D.C.

Our members utilized these sessions to quickly zero in on key challenges and promising solutions in areas including the following:
• How to supervise offerings that until now have not been subject to a suitability standard, such as 401(k) plans and IRAs;
• Managing incremental supervisory responsibilities for broker-dealers regarding affiliated advisors with their own RIAs; and
• How to repurpose systems and procedures developed in preparation for the Department of Labor’s original (and now-defunct) fiduciary rule to help with Reg BI compliance.

While safety concerns surrounding Covid-19 have since made in-person gatherings untenable, these initial events played a key role in helping many of our members get a jump start on developing their implementation plans. They also formed the foundation for a crucial dialogue between our members and third-party compliance experts, such as regulatory attorneys, which has continued virtually since the broad shift to working from home.

Conveying Members’ Concerns Through Ongoing Discussions With Regulators
The vital discussions we facilitated with and between our members also served another crucial function: Informing our ongoing dialogue with the SEC and Finra regarding issues that continued to come up throughout the Reg BI implementation process.

As one key example, our rapport with firms across the industry helped us take a proactive stance in asking regulators to factor in the unavoidable obstacles created by Covid-19 with regards to training and other issues.

Reg BI’s core obligations—care, disclosure and conflicts of interest—require home office staff and advisors to go through extensive training to understand the full scope of their responsibilities, including those under Form CRS. With in-person training becoming untenable during the pandemic, firms were forced to shift to virtual training options.

While many of our members reported positive results from their virtual training programs, such programs have limitations, since they sometimes fail to capture the nuances that only an in-person experience can provide. As a result, we asked the SEC to adopt measured expectations regarding the type and scope of training that firms were able to put in place in the runup to Reg BI’s implementation deadline.

Along the same lines, we also engaged regulators about allowing electronic delivery to be the default option for client documents and disclosures and worked to encourage the SEC to relax requirements for annual in-person branch examinations.

With health and safety at the forefront of our members’ minds, we believe these common-sense solutions will remove potential stumbling blocks and help ensure the long-term success of Reg BI.

Much Work Still Lies Ahead
We are pleased to see Reg BI implemented. However, a number of states across the country are continuing to move forward with proposals for their own individual fiduciary standards, threatening to create a patchwork of inconsistent or even conflicting regulations from coast to coast.

Now that Reg BI is in place, we encourage these states—and other regulatory agencies—to reconsider such initiatives while the benefits of the SEC’s new rule start to take effect. As one example, we expect in the near term that Form CRS will start driving important conversations between advisors and investors that will significantly strengthen clients’ understanding of their advisor relationships.

The Department of Labor’s (DOL) recently proposed transaction exemption shows promise for aligning DOL’s rules with the requirements of Reg BI. We are encouraged by the Department’s efforts and look forward to engaging with them to ensure consistency and clarity for investors and advisors.

Introducing new state-by-state standards and conflicting federal requirements now could undermine the promise of Reg BI, rather than contributing to the stability, transparency and clarity of the overall regulatory framework.

With Reg BI now a reality, we will continue to provide leadership to ensure its long-term success by facilitating productive dialogue among our members and communicating challenges and concerns to regulators. For advisors, firms and clients alike, the stakes are too high to do otherwise.

Dale E. Brown is president and CEO of the Financial Services Institute.