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In Your Best Interest: New Cabinet Tools to Support Regulatory Compliance

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

Regulatory change increases overhead expenses for financial institutions. Regulation Best Interest ("Reg. BI") significantly expands the obligations that broker-dealers owe to retail investors. To assist in navigating these new requirements, the Cabinet produced four new Topic Pages:

Reg. BI was issued as part of a package of new rules and guidance intended to strengthen the obligations that broker-dealers and investment advisers owe to their clients. For additional guidance, see the Reg. BI Topic Page and our recent memorandum.

The two other principal parts of this package are the SEC's interpretation regarding an Investment Adviser's Fiduciary Obligations and the requirement that both broker-dealers and investment advisers send their clients a Form Client Relationship Summary. For additional guidance on this aspect of the rulemaking package, see the Topic Pages on the Investment Adviser Standard of Conduct and Form CRS, as well as our recent memorandum on the subject.

At the same time that it issued the above rules and guidance, the SEC also issued an interpretation of the advisory activities that a broker-dealer may offer as incident to its advisory services without being required to register as an investment adviser. For guidance on this, see the Topic Page on the "Investment Adviser Definition."

Cabinet Topic Pages are just one resource in the Cabinet designed to assist subscribers in improving compliance while cutting costs. To try out the Retail Best Interest Topic Pages, or to find out more about Cabinet Premium and what we will be rolling out next, please contact William Sadd at (212) 993-2818 or at [email protected]. For a complimentary training session, please contact Cheryl Kuntz at (212) 993-3220 or at [email protected].

Commentary

The establishment of heavier federal and state burdens on broker-dealers that provide clients with recommendations, combined with the potential great diversity of state regulation, is a blow to the business model of "full-service brokerage." (See here for additional commentary on how Reg. BI may affect full service brokerage.)

Firms continuing to provide a full-service brokerage option to retail customers will need to review their procedures for dealing with retail customers very thoroughly.

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Commentary / William J. Sadd