Dually-registered firms and reps must also disclose that they go back and forth between offering advisor services with monitoring, along with pure, transactional brokerage, which can be dicey to explain and even more dicey for customers to understand.
Advisor relationships carry a fiduciary responsibility, while brokerage relationships require only that the rep acts in the customer’s best interest.
“That has sometimes been difficult for advisors to address—the discussion of how their reps cross the line between broker and advisor,” Wilson said. “Most of our clients do have hybrid reps. While certainly there can be disclosures related to it, firms are also using conversation starters where they’re highlighting to the prospective customer that this is an area that they should explore further through questions such as ‘how will you choose investments for me’ and ‘why are you choosing this account for me.’”
He added that as regulators and compliance professionals see how others in the industry handle stickier subjects, it will provide the intelligence needed to allow firms to communicate and do due diligence with greater ease and consistency.
He also urged broker-dealers to double check not only the verbiage in their Form CRS, but their training and supervision around the new disclosure.
“You have to make sure you’ve considered all of the other procedures and the staff that needs to be trained and tied to all client events especially account openings,” Wilson said.
Will this mean broker-dealers, particularly those that use riskier retail accounts and practices, will have fewer places to hide?
“I think it is certainly making the industry more transparent and the regulators are leveraging all the tools and technology at their disposal to support that transparency,” he said.
In terms of giving the industry some type of grace period for making a good-faith effort in filing their Form CRSs as industry practices evolve, Wilson noted that based on other new regulations and disclosures, the SEC generally gives firms 12 to 18 months to polish their disclosures.
“There are always stragglers for new regulations, that is the dynamic of the industry, but I think the industry has adequate time to prepare, analyze and engage the regulators on this,” he said.