Gary Gensler, chairman of the SEC, emphasized that “best interest means best interest” during a fireside chat at FINRA’s annual conference that registered agents should be cautious if they feel they are within the limit of the regulatory best interest set by the regulation Approaching boundaries.
“So if you ask a lawyer, accountant or advisor if something is off the line, it may be time to step down,” said Gensler, speaking with FINRA President and CEO Robert Cook. “Remember that it may not be compatible with the law or its purpose to go to the edge of a rule or to look for ambiguities in the text or in a footnote.”
Gensler’s remarks came to a close at the end of a full day with remote panels, during which the first year of Reg BI implementation was a common topic of conversation. Gensler said it was important for brokers to make best interest regulations for retail investors, warning that disclosure alone may not always be enough.
Gensler said the SEC would review the new rule with its auditing and enforcement functions, but also said more guidance might be possible and reiterated statements he made in Congress earlier this month. He asked representatives to simply examine the best interest identification.
“What would you like someone to advise your sister, brother, son, daughter, parents in their best interests?” he said. “It’s just a sensible way of thinking about it.”
So far, SEC and FINRA auditors looking at how organizations initially implement Reg BI have identified some common problem areas. Specifically, the commission found that some companies adjusted the rule for employees without giving more specific instructions on how it might actually be applied, said Pete Driscoll, director of the SEC’s auditing department.
As an example, Driscoll said it found examples of a company’s practices where registered agents must consider alternatives and costs when considering whether a recommendation is of best interest. However, these procedures did not provide any indication of what costs to consider or how to identify available alternatives. On training, Driscoll said the SEC wanted to see companies clarify how the rule would apply in practice.
“I think some of the key takeaways from our early reviews are the importance of not only providing registered agents with guidance on what BI requirements are, but also concrete examples of how the requirements can be met, which is basically the law in a real environment. Especially since most of the registered agents are not lawyers, ”he said.
Driscoll found that firms followed the form’s CRS mandates, with many legal entities avoiding and making good use of hyperlinks (although some firms used boilerplate language or inappropriately described partners). However, Driscoll reiterated that hundreds of companies have not submitted a form CRSand some still hadn’t responded after the SEC reached out to them informally and asked why. Driscoll said the commission was investigating these companies.
FINRA made efforts to get companies to follow instructions because the CRS guidelines for forms were “pretty accurate,” said Bill St. Louis, SVP and group leader for the regulator. He said some companies didn’t fill out the disciplinary history section correctly, some companies didn’t use that exact heading, or didn’t give a yes or no answer. With a Reg BI Roundtable that was jointly organized by the SEC and FINRA last autumnFormer SEC chairman Jay Clayton cited the CRS form of disciplinary disclosure error as one of the top issues regulators uncovered.
But even for those companies that submitted their form, some made it available but not easy to find, Louis said.
“Another problem we saw was companies that posted it on their website but didn’t prominently publish it,” he said. “So, many clicks to find it for private investors.”