A massive, multi-state sweep of broker-dealers to gauge the effectiveness of their Regulation Best Interest implementation will be completed early next year, giving state regulators what they hope will be a clear snapshot of whether or not firms are putting investors interests first, Andrew Hartnett, president of the North American Securities Administrators Association, said in an interview. 

Similar multi-state exams of 443 firms last November uncovered rampant retail advice and sales violations, despite the fact that Reg BI had by that time been in place for more than 15 months.

“NASAA’s member states did not see the tide-turning reforms they had expected to see in the broker-dealer industry after Regulation Best Interest took effect,” Melanie Senter Lubin, former NASAA president and Maryland securities commissioner, said.

“Now we’re out there doing exams again to see where the industry is now, what’s changed and how well firms are implementing the requirements to look at reasonably available alternatives,” Hartnett said. 

“The current plan is for the process to finish early next year and then we’ll take a look at what we have and go from there. It’s really a matter of trying to continue to understand the efforts the industry has made to grapple with the rule, get rid of conflicts of interest and offer advice that is as conflict free as possible,” NASAA’s president said.

The time for enforcement leniency and do-overs, at least as far as state regulators are concerned, appears to be over.

“We’re beyond two years out from Reg BI implementation date at this point, approaching the two-and-a-half-year market. My instinct on this is that firms have had a enough time to get this right,” said Hartnett, who is also a top securities regulator in Iowa.

The 2021 sweep found a majority of broker-dealers and reps were still putting their own financial interests above their retail investor customers. In fact, broker-dealers increased their offerings of complex, costly and risky products by 11% after Reg BI took effect, according to NASAA.

Some 65% of brokerage firms also neglected to discuss lower-cost or lower-risk products with their customers, even when the firm offers such products, the sweep found.

On the registered investment advisor side of the business, NASAA is ramping up its focus on fees and expects to release guidance next year. 

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