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Regulation and Compliance > Federal Regulation > FINRA

Reg BI Is Epic Moment for Brokerage Industry: FINRA’s Legal Chief

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While the Securities and Exchange Commission has stated Regulation Best Interest’s goal is “to preserve the broker-dealer advice model,… that’s to say they are trying to save the broker-dealer business as we know it,” Robert Colby, FINRA’s chief legal officer, said Friday. “This is really an epical moment; a critical time for the regulation of broker-dealers.”

Recent reports have said that Reg BI and the agency’s advice standards package will be before the commission for a vote the week after Memorial Day, Colby stated during the last day of FINRA’s annual conference.

Colby, who moderated a panel discussion on top compliance and legal topics, queried panelists on what they’ll be watching for in Reg BI, which he said is “rumored to be very long.”

Evan Charkes, chief legal counsel for Merrill Private Wealth, said that Reg BI will usher in a “fundamental change to the retail brokerage model in terms of the standard of care.”

Charkes said that he will be looking to see if the SEC kept the same “framework” that was in the proposal. Will the SEC keep Reg BI’s disclosure of fees, care obligation, and disclosure and mitigation of conflicts obligations intact, he said, or “will it take one away or add a fourth?” Also, does the new Reg BI “use the word ‘fiduciary’? That would be a very important thing to look for right away.”

After that, he will look to see if “any definitions” have changed in the rule. For instance, regarding titles — the proposal’s goal to restrict broker-dealers’ use of the term “advisor.”

“That’ll be challenging if they follow through on that,” Charkes said.

Norm Ashkenas, chief compliance officer for Fidelity Brokerage Services LLC, stated on the panel that he’ll be looking to see whether Reg BI will be structured in such a fashion as to mitigate the need for FINRA’s suitability rule while preserving choice and allowing room for a buy-and-hold investor.

Lourdes Gonzalez, assistant chief counsel, sales practice, in the SEC’s Division of Trading and Markets, said on a separate panel Thursday that the fundamental problem that Reg BI is attempting to address is “how do you provide advice in the face of conflicts. Everybody who’s an agent has a conflict.” The SEC, she said, “is really trying to raise the standard of care when they [offer] advice while preserving the broker model.”

Michelle Oroschakoff, managing director and chief risk officer for LPL Financial, stated on the Thursday panel that she didn’t agree that Reg BI was no more than FINRA’s suitability rule. Suitability “just has to be appropriate for you, and that’s a lower standard than best interest.” Putting the “investors’ interest first and the associated disclosure obligations are a much higher standard of care.”

Said Oroschakoff: “One of the things that’s important is that with the requirement to put the customer’s interest first, every individual firm is going to have to think how they’re going to do that. And they’re going to have figure out how they’re going to mitigate or eliminate conflicts.”

A best interest standard, Oroschakoff argued, “is clearer to the customer … customers do not come to you understanding what suitability is.”

— Check out FINRA Pushing Ahead on CAT, Rule Review: CEO Cook on ThinkAdvisor.


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