Broker-dealers have been subject to a lot of fee pressure both from the market and regulatory changes. The new Security and Exchange Commission’s Regulation Best Interest (Reg BI) requirements have the entire industry abuzz and are another advisor requirement that must be met. Advisors and their firms have until June 30, 2020 to comply with the Reg BI rule, which requires them to put their clients’ interests ahead of their own, and to mitigate any potential conflicts of interest.

The administrative requirements and technology resources needed to address Reg BI are compelling, especially with a fast approaching deadline. One component requiring significant resources from firms is the delivery of Form CRS (Customer Relationship Summary), a summary of a retail investor’s overall firm’s relationship with their advisor or broker-dealer to all retail investors. But, firms can ensure they’re ready if they streamline workflow processes and consider new technologies. However, they will need to move quickly.

There is no denying that Form CRS is an important disclosure for retail investors, and is another step in providing clients with a better, more trusting experience with their wealth advisors. The SEC states that it will bring “transparency and comparability” to the process by which an investor chooses an advisor or broker-dealer. The form itself must not exceed two pages and be written in plain English, and will describe the firms’ fees, any possible conflicts of interest, and disclose whether the firm or its employees have any legal or disciplinary history. It can be delivered digitally or via paper and will outline the types of client relationship offered by the advisor or broker-dealer, and the required standard of conduct for those relationships.

In the spirit of education, Form CRS will also include a link to a dedicated page on the SEC’s website, which offers information about broker-dealers and investment advisors, and other materials. This will help allow the retail investor to clarify if they are dealing with an investment advisor or a broker-dealer, and what difference that might make to their experience.

While the objective of Form CRS may be relatively straightforward, compliance is not. The bulk mailing of forms to an advisor’s and broker dealer’s client base is the easy part. Firms must also send the same new disclosure to prospective customers, before they make any recommendations on account types or investments, let alone open an account for the investor. Firms also need to send a new Form CRS when there are changes to the disclosure, such as pricing structure changes, or whenever the relationship summary must be updated. There is another sting in the tail. Broker-dealers must track these communications, and store them for possible regulatory reviews.

Firms will need to beef up their technology to ensure compliance. Their systems need to be able to detect when a Form CRS is required to be delivered, create a list of recipients and automatically send out the disclosure document. The technology also needs to be accessible, allowing a broker-dealer who meets a prospect on the golf course or about town to easily send the document. Firms are exploring mobile solutions for their registered representatives.

The entire Reg BI process is ongoing. It’s not just the one-time delivery of Form CRS. It will require strategies and tactics well thought out with firms and their technology partners. The U.S.’s 2,700+ broker-dealer firms and 13,000+ investment advisors serve around 180 million customer accounts and clients. Firms also have about 130 business days to minimally deliver the Form CRS since both investment advisors and broker-dealers are required to start filing Form CRS from May 1, 2020, but no later than June 30, 2020. It’s also critical for firms to have an automated solution that provides Form CRS updates to prospects with product and pricing changes, etc. This process must be driven automatically by “triggers” from firms’ CRM and/or back-office systems. It will be necessary to track and prove the communications were sent since there will be the specter of SEC and FINRA audits over Reg BI.

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