It probably won’t matter how much a pricey, underperforming mutual fund or ETF sponsor is willing to pay a broker-dealer for a spot on its platform after Regulation Best Interest goes into effect June 30.

The threat of regulatory enforcement and the impact of rising consumer demand for value is likely to far outweigh any profits that could result from offering costly laggards going forward.

That’s according to Matt Radgowski, Morningstar’s head of advisor solutions, who said the new regulation not only works to filter out higher-cost funds from firms’ platforms, but also highlights less desireable fund outliers at the recommendation level of retail transactions.

“As we’ve engaged with firms’ workflows, we are able show higher-cost options in comparison to other funds with lower costs and better performance,” added Radgowski, who said Morningstar has heard from an increased number of broker-dealers in the past 30 days.

He said the new side-by-side investment comparison reports that Reg BI mandates firms give to investors, and make available to FINRA and SEC examiners, will further make it impractical from both a compliance and business perspective to offer funds that underperform and overcharge.

“The requirement that broker-dealers either eliminate or disclose and mitigate conflicts of interest, and growing consumer demands for value, will make it harder for high-price funds that don’t offer value to stay on shelves. These regulations will accelerate the push toward lower-cost options,” Radgowski said.

“The way broker-dealers and reps work is really going to have to change under the rule and center on how and why they make investment recommendations. Each recommendation will need to be evaluated relative to reasonable alternatives and their performance, risk and explicit price."

What will the investor see after June 30 when he or she gets a Reg-BI compliant recommendation report from a rep?

“This gets to the heart of the changes that are required,” Radgowski said. “What we’ve done is taken all the data, research and tools we’ve developed over the years and created a reasonable alternative screener. What that means is that as the rep decides ‘I would like to recommend fund A,’ we will go out and show three, five, seven, nine alternatives from a fee, risk and performance perspective that may be better or similar. That data is presented side by side in a report so rep and investor can see right in front of them the investments that we feel are reasonably available alternatives."

He called the rule “a great first step in the right direction toward empowering investors because comparison will be mandatory,” he added.

In January, a Morningstar survey found that a third of B-Ds were not prepared for Reg BI. But that changed “literally over the last month, when firms began calling us and asking ‘What do I need to do to meet this obligation?’ Many firms are now furiously trying to prepare,” Radgowski said.

The trigger may have been the stern SEC reminder that went out in mid-January warning firms that the rule would not be delayed or rescinded and that they needed to be prepared.

“When that mid-January alarm bell went off, we really saw firms accelerate activity,” he added.

Firms are also engaging the firm to screen their platform offerings for reasonable alternatives. “At this point, we’ve engaged with a lot of firms regarding conversation about revisiting their product shelves to make sure quality regarding risk, performance and cost are there,” Radgowski said.