by Dale Brown
President & CEO,
Financial Services Institute
For more information or
to become a member, go to
www.financialservices.org.
structures and other key elements of the
client engagement. With this disclosure
mechanism, Reg BI refrains from tipping
the scales against models that involve
transaction-based compensation
or proprietary products.
FSI believes a two-tier disclosure regime
— starting with a concise point-of-sale
document at the beginning of the client
engagement with links to more detailed
disclosures on the firm’s website or
elsewhere — has the greatest potential
to facilitate productive conversations on
key issues between clients and financial
professionals. In our view, Form CRS has
the potential to serve as the first element
of such a system.
The SEC has also done an admirable
job in this area of including elements that
stakeholders on all sides of the industry
can support. As an example, we agree
that the term “adviser” or “advisor” should
only be used by investment advisory
representatives and dually registered
individuals (as long as these terms can also
be used by broker-dealers with a separate
affiliated RIA and their associated persons).
Our comment letter included constructive feedback to further
strengthen Reg BI. For example, we urged the SEC to provide specific
guidance as to what constitutes a material conflict of interest and to
clarify how firms can sufficiently mitigate conflicts that cannot
be eliminated. In addition, we emphasized more disclosure does not
result in better disclosure and encouraged the SEC to further simplify
its CRS to a one- or two-page document with instructions
(or hyperlinks if delivered electronically) directing clients who are
interested in more robust disclosure information.
The SEC also requested comments on harmonizing investor
protections across both the investment advisor and broker-dealer
sectors. Of most immediate relevance to Reg BI, we suggested
extending to investment advisors the duty to mitigate or eliminate
material conflicts — rather than merely disclosing them — would
improve our industry's ability to provide a consistent and reliable
standard of care to all investors.
Our letter also included suggestions to level the playing field in areas
such as examination practices and frequency, licensing requirements,
continuing education, and advertising oversight and review.
The SEC’s introduction of a proposed best-interest framework is a
tremendously positive development for our industry. Reg BI would
establish a uniform standard of care and create strong new disclosure
and conflict mitigation requirements that reduce investor confusion
and enhance investor protections.
FSI is pleased with the SEC’s progress on this effort, and
we look forward to continuing our productive dialogue
with the agency in order to move our industry’s
regulatory framework even further in the
right direction.
NOVEMBER 2018 | The STAR 34