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Report: Advisors Beware of Reg BI's Duty of Care Provision

A new report by Celent warns that broker/dealers and RIAs could face challenges meeting Reg BI's Duty of Care provision, among other concerns.

Pandemic or no, just a few days remain before the SEC's Regulation Best Interest goes into effect on June 30. With that in mind, research firm Celent has published a new report titled “Reg BI: Mapping The Technology Solutions Landscape.”

Many broker/dealers and registered investment advisory firms will be ready for meeting the baseline requirements, especially if regulators provide some leeway for firms making good faith efforts early on, the report states. Things become more challenging as firms are expected to meet the specifics laid down in the Duty of Care provision.

“A lot of firms and vendors have repurposed their DOL tech and I don’t think very many will have significant issues initially,” said Will Trout, Celent’s head of wealth management and author of the report. “They may have issues with things like Form CRS getting to clients on Day 1.”  

Having the right mix of technology in place without too much overlap between vendors and applications could pose more of a challenge, he said, especially when it comes to what are referred to as Day 2 considerations.

Specifically, the Duty of Care provision requires all reasonably available product alternatives are considered when an advisor makes a recommendation. Particularly problematic from a tracking and monitoring standpoint is that product assessments must be made at the time of the recommendation.

“How do you calculate the cost of that and the holistic best interest principle because cost is an issue—proof will be in the pudding—data needs to be accessible at the time of the decision, meaning you have to show you weighed these factors at the time of the decision,” Trout said.

It's something firms of all sizes have been preparing for over the last year since the SEC approved the regulation.

Heidi Heath, chief compliance officer of hybrid firm MACRO Consulting Group, headquartered in Parsippany, N.J., said she has had to bring many resources to bear in order get her firm ready for Reg BI.

“It did take a lot to get prepared,” she said, recounting personal research, a review of her own technology stack and feedback from her network of fellow professionals among the work she has put in over the past year. She pointed out one helpful example: a monthly Investment Adviser Association focus group to work through issues of Form CRS compliance.

“There were over 100 people on this call every month sharing experiences, draft documents, concerns,” she said. “The next challenge of this is the delivery requirements—I have ours prepared, the broker/dealer’s, the two firms we use as sub-advisors—it wasn’t an easy document to write.”

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