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Regulation Best Interest (Reg BI) is a package of rulemakings and interpretations intended to enhance the quality and transparency of investor relationships with financial professionals and brokerages. This package included the new Reg BI Standard of Conduct and new Customer Relationship Summary, both of which take effect on June 30, 2020, and new interpretations under the Investment Advisers Act of 1940, which are effective now.
Reg BI comes with 4 main obligations, each will be discussed below with the scope of the obligation, and the procedures that each entail
You must, prior to or at the time of the recommendation, provide the retail customer, in writing, full and fair disclosure of:
This obligation is satisfied by delivering the customer the following disclosures.
Customer Relationship Summary (CRS)
The Form CRS must be delivered to retail investors at the earliest of:
The delivery of Form CRS is required to be recorded for books and records. Please see Securities America's quick card below that explains how to record proof of delivery.
Form CRS Log Quick Card
Securities America Broker-Dealer Firm Brochure
The Broker-Dealer Firm Brochure must be delivered prior to or at the time of recommending your clients open their first commission account. Securities America is using a layered disclosure approach to disclose specific details, which allows the initial delivery of the Broker-Dealer Firm Brochure and then relies on additional disclosures such as account statements, trade confirmations, fee disclosures, account opening paperwork and product prospectuses.
The Care Obligation
Regulation Best Interest (Reg BI) requires financial professionals, when making a recommendation to a retail customer regarding any account, securities transaction or investment strategy involving securities, to act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker ahead of the retail customer’s interests. This obligation, including documentation, applies even if the recommendation is not taken and acted upon by the current or prospective customer.
Under the Care Obligation, you must:
Going forward, the Duty of Care form or notes extensive enough to cover the questions asked on the form must be included with every set of paperwork uploaded for review. The questions we are looking to answer are:
Below is our version of the Duty of Care. If you would like a customized version with your logo, please contact Sean Rees.
Duty of Care Account Addendum
The Conflict of Interest Obligation
The Broker-Dealer must establish, maintain, and enforce written policies and procedures reasonably designed to identify and—at a minimum—disclose or eliminate conflicts of interest. Policies and procedures must:
Please remember that this is a Broker-Dealer only requirement, nothing is needed from you to satisfy this requirement.
The Compliance Obligation
Broker-dealers must establish, maintain, and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole. Below are resources that we have put together in order to help you understand and abide by the new policies and procedures. We will be adding more information below as new procedures are added. We are also working on hypothetical cases with examples of Duty of Care forms and notes for approval.
Employer Plan Rollovers
Securities America has adopted a new Employer Plan Rollover Acknowledgement form (please find the most up to date version of the form in the SAI Forms Library). It will be required for all employer plan rollovers, not just those from ERISA Plans. The form is required any time a recommendation in regard to a rollover is made, even if the client does not follow through with the advice given.
Previously rollovers to a brokerage account did not require pre-approval, now approval is going to be required before rollovers of $100,000 and above can be sent to a brokerage account. Going forward, requests for pre-approval can be submitted to the vault as Existing Account Maintenance. You will have to submit a copy of the EIRA form and a narrative indicating: you are seeking pre-approval for an employer retirement plan rollover; the dollar amount of the rollover; why this rollover is appropriate for this client. We expect this process to change in the future, and we will communicate the new procedure at that time.
Visit Securities America's Compliance Resources Page for Reg BI
SEC's Frequently Asked Questions Page for Reg BI
SEC's Compliance Guide for Reg BI