Displaying items by tag: reg bi

The DOL's new Retirement Security Rule mandates that advisors handling retirement savings follow a fiduciary standard, prioritizing clients' best interests. Effective September 23, 2024, with a 365-day transition period, this rule could help clients save up to $5 billion annually by ensuring unbiased advice. 

The rule addresses issues with rollovers and commissions, aiming to close previous regulatory loopholes. While some industry groups plan to challenge the rule in court, many investment advisors already operating under fiduciary standards support it.

The CFP Board applauds the rule, noting that 92% of Americans expect fiduciary-level retirement advice. This rule intensifies the debate between fee-only advisors and commission-based professionals regarding conflicts of interest.

Finsum: We don’t expect this rule to have a huge impact on advisors, but future regulation will drastically be impacted by November 2024. 

In a blog post, Bill St. Louis, FINRA’s head of enforcement, said that more Reg BI cases are ‘in the pipeline’ and that ‘disciplinary actions have been increasing’. He added that these cases in the pipeline involve Form CSR, excessive trading, complex products, and variable annuities. 

Two recent enforcement actions involved the use of social media influencers for customer acquisition. FINRA fined Cobra Trading $200,000 for paying social media influencers with larger followings to promote the firm. According to the agency, these promotional posts made false claims and were not fair or balanced. Similarly, M1 Finance was fined $850,000 for social media posts made by influencers on the firm’s behalf that violated FINRA’s guidelines. 

Given that a growing share of the public now gets news and information about investments from social media, the agency is conducting regular sweeps. Firms are also required to conduct a consolidated audit trail. According to St. Louis, most firms are in compliance with these reporting obligations, but some audit cases are also in the pipeline. 

Finsum: FINRA is stepping up enforcement of Reg Bi. Two recent enforcement actions were due to firms improperly using social media for promotion.  

Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), spoke recently at the Investment Adviser Association Compliance Conference. In a Q&A session with reporters, he remarked that there were no current plans to modify or update Reg BI. Instead, the agency’s focus is on ‘examining for and enforcing against’ Reg BI.

In later remarks, he addressed its approach towards predictive data analytics. He believes this is a gray area, and the SEC wants to ensure that there are no conflicts of interest within newer technology that utilize behavioral prompts and nudges. Of course, this topic is even more germane given the increasing use of artificial intelligence (AI) powered applications. 

Gensler wants to ensure that there are no loopholes to bypass the fiduciary rule. Many in the industry contend that this rule is a backdoor expansion of Reg BI and that current regulations were sufficient. 

Previously, Gensler had spoken that the new technology enables practices to micro-target consumers with products and content. While this can help advisors grow their business, he believes this communications channel needs to be regulated as well to ensure that these business interests are not placed above the clients’. 

Finsum: At a recent conference, SEC Chair Gary Gensler pushed back that there was a backdoor expansion of Reg BI due to the predictive analytics rule. The rule mandates that predictive technology that communicates with clients must also follow the fiduciary rule.

FINRA and SEC regulators have increased enforcement and oversight of Regulation Best Interest (Reg BI). Recent focus has been on increasing compliance within the sales process. There have been several FINRA actions to punish firms for improper supervision to ensure the fiduciary standard is being followed.

The pace of these actions and enforcement has gradually picked up since the moratorium on enforcement ended. Further, regulators have also made public comments emphasizing the need for more aggressive action. 

In 2023, there were FINRA enforcements following only 8 in 2022. The agency has also started to impose personal fines for sales violations or requiring advisors to pay back a portion of losses. Prior, regulatory agencies would see compensation and damages from the firm rather than individuals. This change in strategy is a reflection that they are trying to deter violations of the fiduciary standard at the individual and firm level.

Looking ahead, comments from SEC and FINRA officials reveal that this is only the beginning. According to FINRA’s acting head of enforcement, Chris Kelly, ‘more and more’ cases involving all four pillars of Reg BI which includes disclosure, care, conflict of interest, and compliance are likely to be filed. 

Finsum: FINRA and SEC regulators are increasing Reg BI enforcement. They are targeting firms for improper sales supervision and punishing brokers for violations.

Over the last couple of months, there has been an increase in the enforcement of Regulation Best Interest (Reg BI). Over the last year, the number of actions taken by the SEC and FINRA have substantially increased. It’s consistent with warnings from regulators that there would be a ‘more substantive’ period of enforcement and that Reg BI will be enforced ‘to the letter’.

Regulators want to see a more robust process to ensure supervision of brokers. The ultimate goal of Reg BI is to ensure that all recommendations are made in the clients’ best interests.  So far this year, there have been 22 FINRA enforcement actions after just 8 in 2022. Penalties are also growing in size as evidenced by an SEC settlement with Laidlaw and Company for $800,000.

Recent enforcement has also seen advisors having to pay back a portion of customers’ losses. This is a departure from precedent when firms were typically on the hook for compensation and indicates a serious commitment to deterring misconduct. 

In 2024, even more enforcement is expected given public comments from SEC and FINRA officials. They see enforcement expanding across all 4 pillars of Reg BI which include disclosures, care obligation, conflicts of interest, and compliance. 

Finsum: The SEC and FINRA are increasing enforcement of Reg BI. They are also looking to fine individual advisors and brokers for misconduct.