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Industry Spotlight > Broker Dealers

Advisors Scrambling to Meet Reg BI Compliance Deadline

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In the final days before the June 30 deadline for broker-dealers and advisors to comply with the Securities and Exchange Commission’s Regulation Best Interest and filing a Customer Relationship Summary, or Form CRS, firms are rushing to meet the requirements, but many of them will be able to do so on time, according to experts who spoke Wednesday during the Securities Industry and Financial Markets Association webinar “Reg BI – How Firms are Managing Ops Changes.”

Hans Schemmel, director of Pershing’s retirement and insurance-based solutions at BNY Mellon, says he sees “a broad spectrum of preparedness” among Pershing’s advisor clients.

But he was quick to add: “I think the good news is that the industry is moving in” the right “direction, and I think a lot of firms will be prepared” on time. Firms seem to be leaving just the operational aspects of their compliance initiatives for “day two” — the days beyond the June 30 deadline, he told viewers.

“We’ve had a few stragglers coming in” for help, Jean Reilly, managing director of Broadridge’s Wealth Management Consulting Practice, pointed out, noting her company is helping advisors and BDs get ready by, among other things, reviewing disclosures; changing language in documents where necessary; updating policies, procedures and fee models; and adjusting lists of products.

Firms are sending statements by email and mail to meet the deadline, and “we are absolutely seeing firms concentrate on training advisors and getting ready for the first audit,” she said.

Asked what the SEC would start doing June 30 to check for compliance, Lee Thoresen, associate general counsel at RBC Capital Markets, said: “I think what to expect is anybody’s guess.”

But the SEC and Financial Industry Regulatory Authority have been “relatively transparent on what they are expecting,” Thoresen said, and have informed the industry they “want to see a good faith effort to comply with these requirements.” she said.

At her firm, “we’ve taken the time — precious time — in these last few days to go through that list” of requirements by the regulators and “treat it sort of as a mock exam” to make sure it is prepared to produce documents and show how it has complied, Thoresen said.

One of the areas that is “particularly going to be a focus in these early days” is disclosure, including how firms have met the Reg BI disclosure obligation and the Form CRS requirements, Thoresen said.

Meanwhile, “all the firms are scrambling to complete and to coordinate” the delivery of the disclosure requirements “in these next few weeks,” Thoresen said.

The regulators will also want to know “what policies and procedures” firms have put in place and how they intend to supervise to make sure their staffs are in compliance, Thoresen said.

“I think every firm is struggling with the paper delivery aspect of it,” Thoresen said, calling that a “massive undertaking.” At the same time, “we want to make sure that our client experience isn’t over-burdened by receiving these big packages of documents — and certainly not multiple packages of documents,” she noted, adding: “We’re trying to make sure that that initial delivery meets the regulatory requirements, but also does not kill thousands upon thousands of trees and burdens our clients’ mailboxes.”

Deloitte’s clients are also holding mock exams to prepare for Reg BI, according to Joshua Uhl, a senior manager at that firm. The focus is on areas covered in the SEC’s guidance, to make sure advisors know what documents could be requested and make sure they will be able to have them available, he said. Deloitte clients are also planning for “day two,” and will, probably over the next 9-12 months, focus on “optimizing certain processes and addressing these loose ends that really need to be tied up,” he said.

However, the three key areas that his company’s clients are focused on now are disclosures, compliance and training, he said.

“Training is definitely one of the challenges that we’re facing in this environment,” according to Thoresen.

A Silver Lining of the Pandemic

As if BDs and advisors didn’t already have enough challenges while preparing for the Reg BI deadline, along came the coronavirus.

“With COVID, for all of us, we’re probably all working at home, we are now the principal, the superintendent, we’re the sous-chef, we’re the cleaning person — we’re doing it all now,” Schemmel pointed out. At the same time, advisors are now dealing with market volatility — “it’s a lot” to deal with as firms try to comply with a new system, but “these are the challenges we all face,” he noted.

As a result of COVID-19, Broadridge is seeing “some added new priorities” by advisors, Reilly said.

“Industry players and advisors in particular are finding that they’re really in a position where they just have to balance acceleration with optimization,” she noted. Digital transformation of their businesses is “at the front of everybody’s mind” now because they are dealing with it every day, she noted, adding: “They’re taking a decade of digital transformation products and digital journeys and trying to get it done in three months.”

However, COVID-19 has been a “gift” for advisors, she said. Broadridge has been talking with over 80 of its clients and advisors, and “93% of advisors we spoke with had critical meetings with all their clients between February and April,” she noted. In the process, clients’ portfolios have been reviewed and rebalanced when needed, she said.

One thing that has been “a little bit surprising” during the pandemic has been that “investors have been super sticky with staying with advisors,” she said, adding: “Advisors have been actively sought out also by new clients and they’ve had to become coaches in a lot of different ways.”

In a recent study by Broadridge of about 2,000 investors, 23% of those who had not used an advisor said they would consider it now and saw benefits of having one, she said. Many advisors, as a result, have had to increase their marketing in the middle of their Reg BI compliance implementation, she said.

— Check out The Reg BI Battle Comes to a Head on ThinkAdvisor.


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