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Gary Gensler, SEC Chairman

Regulation and Compliance > Federal Regulation > SEC

More Reg BI Rollover Guidance Likely on Its Way: SEC Chief

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What You Need to Know

  • The March Reg BI guidance focused on account recommendations.
  • SEC staff is considering additional bulletins, Gensler said.

The Securities and Exchange Commission is mulling more guidance related to Regulation Best Interest, including when recommending rollovers, SEC Chairman Gary Gensler said Tuesday.

SEC “staff is considering additional bulletins that would further provide their views” on each of the three points that were addressed in the agency’s March guidance regarding Reg BI, Gensler said at the North American Securities Administrators Association’s public policy conference in Washington.

Gensler reiterated that he has asked the Divisions of Investment Management, Trading and Markets, Examinations and Enforcement “to help ensure that investment professionals live up” to Reg BI obligations.

The March Reg BI guidance, focused on account recommendations, including rollovers, and zeroed in on “three core points,” Gensler said.

First, “brokers and advisors need to prevent their own interests from inappropriately influencing their recommendations and advice. If they can’t do that, they have decisions to make — eliminate the conflict, don’t give the advice, or find some other way to ensure that they don’t put their interests ahead of the retail investor’s interests,” Gensler said.

Second, “in order to offer recommendations and advice in the best interest of the investor, brokers and advisers need to consider reasonably available alternatives,” he relayed. “This needs to be a meaningful evaluation.”

Third, “as part of that analysis, brokers and advisers need to consider costs and risks to investors,” Gensler stated. “While it is true that they don’t always have to recommend the lowest-cost option, they must have a reasonable basis to believe a higher-cost recommendation nonetheless is in the investor’s best interests.”

Gensler went on to state that brokers and advisors “have a critical role to play” in Reg BI compliance.

“Disclosure is important but not sufficient when it comes to acting in a retail investor’s best interest,” he said. “Firms need to take investor protection and compliance obligations seriously, reining in or curing any conflicts and really delivering the best interest advice that investors so need and deserve. That’s how we get the best out of best interest.”

‘Still Work to Be Done’

NASAA has released two reports on Reg BI, one released last November that found broker-dealer compliance with Reg BI was falling short, and the group’s 2020 Reg BI Phase One Report, which analyzed financial services industry policies and practices prior to the implementation of Reg BI.

Melanie Lubin, NASAA president and Maryland securities commissioner, said in November that NASAA’s report showed that “while there has been incremental progress [in Reg BI compliance],  broker-dealer firms still are not abiding by the Reg BI rule now in effect.”

State securities regulators, Lubin said, “did not see the tide-turning reforms they had expected to see in the broker-dealer industry” after Reg BI took effect.

The 2021 report “reveals that while there were some improvements, most firms are operating in the same manner as they were under the suitability rule, especially when it comes to harmful compensation conflicts,” she explained.

In a question-and-answer session with Lubin on Tuesday at the NASAA event, Gensler said that “I took away from the reports that there’s still work to be done.”

The Reg BI reports “I think highlighted how there’s greater disclosure — sometimes there’s 60 pages of disclosure — I don’t think you can just disclose away a conflict. You cannot disclose away a best-interest obligation. You really do have to consider alternatives — what are the reasonable alternatives, that’s what the [SEC] staff said in this [March] staff bulletin; But the [Reg BI] rule is clear on this: You’ve got to consider the reasonable alternatives, you’ve got to put your clients’ interests first.”