That usually means regulators have identified a trend or pattern they want to ask questions about to be able to determine how well reps complied with Reg BI from the product recommendation stage through the supervisory approval stage, Porteous added.
“Firms should make sure that reps have access and are using consistent information and that you have the ability to demonstrate these efforts in an examination, which I think will be shifting from a primarily procedures-based review to much more qualitative,” Porteous said.
Gary Gensler, the SEC’s chairman, said during a recent congressional hearing that he believes investors have the right to work with brokers who have their best interests at heart, noted Wegener. Gensler also said that the agency will be doing exams, enforcement and creating guidance to ensure firms fully comply with Reg BI “as written.”
This means agency examiners won’t just be looking at a firm’s technical compliance, but at how the firm monitors, discloses and resolves conflict, Wegener said.
Firms, Wegener said, should “focus on ensuring that [they] have procedures, processes and training in place that effectively support reps in making BI recommendations. They also need to effectively assess if recommendations are aligning with investors’ goals and show reasonable alternatives, features, costs and risks.”
Reps often ask, “How many products do I need to compare?”—which is where firms need to provide technology, procedures and training that allow professionals to make decisions based on comparisons of approved products showing net expenses, performance and risk. Reg BI programs that help reps document variable annuities recommendations should detail comparisons of rider fees, policy fees and maximum surrender fees, said Dave Carr-Pries, vice president of product and marketing at InvestorCOM.
Reps should also be trained to add contemporaneous notes in their comparisons that detail why they are considering a recommendation. The client may be looking for growth or may be looking to guarantee income or maximize tax savings. But these are notes that the firm will need in an SEC exam, Carr-Pries said.
“While every recommendation is different,” Wegener said, “regulators will look to see if reps are consistent when they make recommendations. [The] outcome may be different, but they should be considering the same factors. Firms should be able to demonstrate that.”