Displaying items by tag: SEC

(Washington)

Smaller broker-dealers around the nation are grossly underprepared for the forthcoming Regulation Best Interest. In early April, the SEC decided not to extend the implementation date of the rule because of COVID, which means all firms will need to be ready by June 30th. However, most small broker-dealers are so focused just trying to stay in business, that most are delaying any actions that will help help for the rule. The SEC has said it will take circumstances into account when enforcing the rule.

FINSUM: One of the big issues besides COVID, is that there is a high degree of complacency about the new rule because many think “I prepared for the DOL rule, so we should be covered for this”. However, there are some important distinctions with this rule (e.g. retail investor vs retail customer), and many could find themselves in hot water.

(New York)

An update to the SEC’s FAQs page has made something abundantly obvious—the title of “advisor” or “adviser” is about to get a lot more contentious. As part of its new Reg BI package, the SEC is bringing in additional rules around the use of titles. Regarding “advisor”, which is completely ubiquitous, the new rules are pretty clear: you cannot call yourself an “advisor” or “adviser” unless you are registered as an investment advisor. Another important note on this, according to Barron’s, “Broker-dealers that are affiliated with RIAs are generally prohibited from using the terms”.

FINSUM: This is a huge disruption to the lingua franca of the industry, but a big boon to investment advisors. Makes us wonder how much the public will actually care.

(New York)

In a stat that should absolutely terrify small broker-dealers, a new survey says that for small firms, Reg BI compliance may cost a large portion of your revenue every year. According to the National Society of Compliance Professionals, a small firm with $500,000 in net capital will need to pay $60,000 a year to comply with the new rule. Bigger firms have high costs too—Raymond James will spend $20m up front, and then another $5m per year to comply.

FINSUM: $60,000 a year is a lot of cost to bear for smaller firms, especially because this regulation does not expand business opportunities and will likely only shrink revenue for many.

(Washington)

Many brokers were hoping that the SEC might grant an extension of the deadline to be in compliance with the forthcoming Regulation Best Interest. Advisors must be in compliance with the rule by June 30th, a previously set date that SEC chief Jay Clayton just reiterated last week. The only reprieve the SEC granted was that the regulator would take “good faith efforts” into account in the initial phase.

FINSUM: Many hoped this deadline would be pushed back into the Fall, but the SEC is dead set on June 30th.

(Boston)

Advisors will have likely noticed that Massachusetts has just introduced a new fiduciary rule. The rule, announced on Friday, makes Massachusetts the first state to adopt a best interest standard since courts struck down the DOL’s fiduciary rule. The rule is under the usual attacks from industry trade groups, but more surprisingly, it is also being attacked by fiduciary rule advocates. Such advocates had initially praised the rule’s first draft, but now say the state made too many changes before implementation. According to the Consumer Federation of America “What’s left is a modest improvement on Regulation Best Interest but not the kind of tough standard needed to protect investors from conflicted advice.”

FINSUM: The changes to the rule were significant, such as not applying to insurance product sales and not applying to brokers unless “account monitoring” was specifically specified in the customer contract. The rule takes effect March 6th.