Beyond Form CRS
Reg BI is not just a Form CRS story. Firms will have to show they have a reasonable basis for believing that their recommendations are in the client’s best interest under the rule’s new standard of care obligations. This will compel them to utilize comparison tools that allow them to easily weigh the pricing and share classes of their products against similar offerings. Firms will need to implement technology that provides this comparison, and quickly building it from scratch might not be an option.  

Firms will also face stringent requirements to identify, mitigate, eliminate and disclose material conflicts of interest. Again, they can manage compliance pains with software that offers deep insights into revenue sharing agreements and expenses, as well as a 360-degree view of client accounts and assets.

Resolve, rather than deep pockets, may be the most crucial asset when it comes to Reg BI compliance. The SEC concedes that the rule will impose costs associated with filing, delivering and recordkeeping, but is confident that the new requirements are achievable. For example, in the rule’s adopting release, the SEC said that while it recognizes the recordkeeping burdens relating to the delivery of Form CRS to prospective clients, “we disagree that they are insurmountable and would outweigh the benefits to retail investors.”

This is a reminder of the principle purpose of the regulation and supports the broader wealth management trend toward greater client personalization. Like Rule 30-e3, the SEC has said that the rule making was focused on protecting individual investors, and has not been about squeezing broker-dealers. In the long run, firms should actually benefit from the rule. Over 90% of clients with an existing financial professional relationship stated that they knew more about their relationship with the advisor after reading such disclosures, according to an SEC survey. But time is running out for firms to get their house in order.

Tim Slavin is senior vice president of retirement services at Broadridge.

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