SEC Best Interest Regulation Implementation Just Days Away

Jun 23, 2020 | Financial

Marketing Blog

While the Department of Labor Fiduciary Rule may be dead in the water, the Securities and Exchange Commission’s Best Interest Regulation, known as Reg BI, is moving full speed ahead for implementation June 30.

Reg BI is the successor to the Fiduciary Rule introduced by the Department of Labor in 2015, following a call from President Barack Obama for retirement advisors to put the interests of their clients above their own financial gain.

Fiduciary Rule Recap

Phase-in of the Fiduciary Rule was to occur between April 10, 2017 and Jan. 1, 2018. However, a variety of events delayed the process. These pushed the date for a complete implementation out to July 1, 2019. Then the Fifth Circuit Court of Appeals vacated the rule June 21, 2018, preventing it from going into full effect.

Setting the Standard

The intent of the Rule was to ensure financial advisors act in the best interest of their clients, rather than themselves. It created guidelines to prevent conflicts of interests in business dealings between advisors and consumers; and required that contracts clearly spell out financial costs.

The DOL addresses questions about the Fiduciary Rule here. The SEC answers some frequently asked questions about Reg BI here.

The Bottom Line

Advisors anticipated a best interest standard would result in a loss of commissions. At the same time, experts predicted the industry would evolve toward fee-based services based on assets under management (AUM). Some firms went ahead and switched to this model. Meanwhile, a number of younger advisors new to financial services adopted it from the beginning.

Wondering if you should offer commission-based services or fee-based services? Before making a decision, weigh the amount of assets the client possesses, how often you’ll be making trades and allocating or re-allocating assets, and how long you expect to manage the client’s portfolio.

Going Forward

It’s unlikely the DOL Fiduciary Rule will be resurrected. However, its successor, the SEC’s Reg BI, goes into effect June 30. Like the Rule before it, Reg BI aims to establish a best interest standard for broker-dealers. It also calls for advisors to make financial transactions more transparent to their clients.

It’s up to advisors whether to work for commission or offer fee-based services. Either way, the intent of Reg BI is that they step up their efforts to provide clarity to consumers planning for their retirement years.

A great way to educate consumers about their financial options is through online events. Our WebinarConnect solution can help you maximize virtual presentations.

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