The time has come. Regulation Best Interest is now upon us. The forms are filed, the websites and the policies are updated. Now we must live the rule. We have been talking about it for a few years, but let’s make sure we are all up to speed on the requirements.
A Customer Relationship Summary (Form CRS) must be delivered either electronically or hard copy to each customer before a recommendation can be made. The CRS is required by the Securities and Exchange Commission (SEC) to be given to every client or prospective client before a recommendation can be made. The summary describes the services offered, the fee structures, and the legal obligations as well as conversation starters prescribed by the SEC. We are required to deliver this to all existing clients within 30 days of filing the form with the SEC and with every new account. It will be your responsibility to deliver it as you pen new accounts. We will be sending it to all existing clients. The Leaders Group Form CRS is available here.
All recommendations must be made in the retail client’s best interest. This is doing the right thing for the customer. Make sure you don’t have any conflicts of interest with the client and disclose any that may be seen as potential conflicts with the client. Recommendations cannot be based on how you are compensated.
Adviser/Advisor cannot be used in your title, business name or materials unless you are an investment adviser representative. This is to make it clearer to clients the difference between fee-based and commission-based financial professionals. You may need to get new business cards, letterhead and change your email signature. (Don’t forget to send the proofs to us for approval before getting them printed.)
Many policies have had to change to ensure compliance with Reg BI. We have made changes to the Code of Conduct – adding “I shall put my clients’ interests before my own when making recommendations”, and “I remember that doing the right thing is always the right thing”. We have added a section on Standard of Conduct (page 11) and added that in addition to being suitable, recommendations must be in the best interest of clients.
New Account Investment Profile and Worksheets changes: We have added additional disclosure on product and fee information and added fields for the date of CRS delivery and how it was delivered, as well as share class if a mutual fund is sold and product name. Worksheets now include if you will be monitoring the account. If you will be, make sure you document the monitoring and review as it occurs.
We will no longer open clearing accounts to only hold mutual funds. The cost of a clearing account is normally higher than holding funds direct at the fund, so unless there are mitigating circumstances, we will not allow new accounts at our clearing firm for people investing solely in mutual funds.
Mutual fund and annuity share classes must be analyzed to make sure they are in the best interest of the client. You must make sure the share class fits the client time horizon and objectives and is the best recommendation for them.
You need to make sure you are offering the correct account type for your client. If you are registered as both a broker-dealer representative and an investment adviser representative, you must make sure you are recommending an advisory or brokerage account that is in the best interest of the client. You need to deliver the CRS for both The Leaders Group and TLG Advisors if you are discussing both types of accounts.
Jane Riley, Chief Compliance Officer