Reg BI is Here - Take These Steps to Review Your Compliance
Regulation Best Interest went into effect almost four months ago, and like most regulatory measures, it’s had some ups and downs.
Of the down moments, the SEC has stated in its initial reviews of Form CRS that it has identified some issues with the new disclosure requirements since Reg BI’s June 30th, 2020, compliance date.
We’ve covered what to include in Form CRS before in a white paper about preparing for Reg BI [add link to white paper], but now that the rule is in effect, it’s a good time to revisit what your firm should be doing—and any updates you may want to make now.
The Early SEC Report on Form CRS
The SEC hasn’t gone into much detail about the exact issues it’s found with Form CRS in its examinations, but it has provided some broad suggestions.
The statement came down to two points of concern:
Some firms may be missing disclosures
Some disclosures may need to be improved
The second issue isn’t all that surprising.
After all, one of the main reasons Form CRS was created was to produce a disclosure document that’s written in “plain English” so all investors can easily understand what’s being communicated.
For an industry that’s not all that used to communicating in plain English, there’s likely to be a transition period to make sure that Form CRS is written in a clear, concise way.
What to Check on Your Form CRS
Now is the time to do a review of the initial Form CRS document your firm is using so you can catch any issues with clarity, or a lack of disclosures, before your firm’s next examination comes up.
As a quick reminder, keep in mind that every Form CRS needs to include five sections:
An introduction of the firm and how it’s registered
A description of the services provided
Explanation of costs, fees, conflicts of interest, and standards of conduct
Disciplinary history of the firm’s financial professionals
How a consumer can discover more information about the firm
The SEC has made Form CRS guidelines and relationship summary templates available here and here that you can reference.
If you’re not sure about a particular section, you can follow one simple and general guideline: When in doubt, spell it out.
What does that mean? In practice, have multiple people within your office read through Form CRS. Mark up any places where a sentence may be confusing. Highlight words that are common in financial services (e.g. “jargon”) but may not be widely used by the average consumer.
Providing Great Advice with Visual Reporting
Remember, disclosure is only the first of the four primary obligations established by Reg BI.
Advisors everywhere also need to continue the best interest advice through the client relationship with Care, Conflict of Interest, and Compliance standards.
One simple way to provide advice that’s easily understandable is to make it more visual. The SEC encourages the use of visuals like “charts, graphs, tables, and other graphics” in Form CRS—and that should carry over into your reporting as well.
The SEC’s advice supports what we’ve known at Asset-Map for a long time. When you provide investors with visualizations of their full financial picture, you can build more trusting relationships and make it easier for them to make smart decisions.