On Tuesday, August 2, 2022, the SEC staff released a bulletin emphasizing the importance of adhering to the Investment Advisers Act and Reg BI, stating that this exercise should be a “robust, ongoing process that is tailored to each conflict”.
Reg BI Overview and SEC’s Recommendations
Reg BI requires investment firms to “act in the best interest of a retail customer” when making investment recommendations or arranging investment strategies for a customer. The SEC previously indicated the importance of adherence to these policies when it filed a federal lawsuit against a registered broker dealer and five of its representatives in June on violations of Reg BI.
In order to mitigate the risk of violating Reg BI, firms must identify conflicts of interest attached to revenue and professional compensation. A closer examination of fees, commissions, markups, quotas, sales promotions, charges, and special awards can help firms identify areas of concern.
In support of Reg BI, the SEC recommended that investment firms discontinue the implementation of sales goals which could lead representatives to act in their own best interest. Additionally, the SEC recommended that the firms’ compliance department should monitor “recommendations or ongoing advice that result in additional compensation”.
The takeaway message from the SEC’s bulletin was that “Firms should monitor conflicts over time and assess periodically the adequacy and effectiveness of their policies and procedures to help ensure continued compliance with Reg BI and the (investment advisers’) fiduciary standard”.
It is important to make sure that your Firm’s policies & procedures are adequately aligned with the regulations outlined by Reg BI.
If you are in need of assistance relating to Reg BI requirements, procedures, or understanding Reg BI compliance issues, please do not hesitate to contact us.