Key Points of Regulation Best Interest (“Reg BI”)

Posted on July 30th, 2019 at 5:12 PM
Key Points of Regulation Best Interest (“Reg BI”)

From the Desk of Jim Eccleston at Eccleston Law LLC:

In a recent speech in Boston, Securities and Exchange Commission ("SEC") Chairman Jay Clayton defended the SEC's new investor protection rule. Let's highlight the key points of the speech.

First, Clayton pointed out that Regulation Best Interest or "Reg BI" is satisfied only when the broker-dealer complies with four specified component obligations: Disclosure, Care, Conflict of Interest, and Compliance.

Second, Clayton offered a point-by-point defense of Reg BI and argued that Reg BI substantially enhances the standard of conduct for broker-dealers. Specifically, Clayton highlighted a few critical features of Reg BI that enhance the standard of conduct:

  1. Reg BI applies to account recommendations, including recommendations to roll over or transfer assets in a workplace retirement plan account to an IRA, as well as to recommendations to take a plan distribution. He argued this is a critical enhancement.
  2. Reg BI requires broker-dealers to act in the best interest of their retail customers and not place their interests ahead of the customer's interests. Clayton exclaimed, "Disclosure alone is not enough." He explained, "It's not enough under the fiduciary duty. It's not enough under Reg BI."
  3. The Conflict of Interest Obligation requires firms to implement policies and procedures to mitigate (and in some cases, eliminate) certain identified conflicts of interest that create incentives to make recommendations that are not in the retail customer's best interest.
  4. The Care Obligation will apply to a series of recommended transactions currently referred to as "quantitative suitability" irrespective of whether a broker-dealer exercises actual or de facto control over a customer's account.

Additional duties include restrictions on how firms promote proprietary products, and a ban on short-term sales contests.

The attorneys of Eccleston Law LLC represent investors and advisors nationwide in securities and employment matters. The securities lawyers at Eccleston Law also practice a variety of other areas of practice for financial investors and advisors including Securities FraudCompliance ProtectionBreach of Fiduciary DutyFINRA Matters, and much more. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

Tags: james eccleston, eccleston law, eccleston law llc, eccleston, regulation bi, regulation best interest, jay clayton, care obligation, conflict of interest obligation

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Jim, Stephany and the whole team were a God send.  We felt like we were put into a situation where we had no advocate. Jim’s team came in with a strong, well laid out strategy on how to get our story heard. Where our outside compliance company had no ability to help, our Broker Dealer was impenitent, and the regulators were aggressive pursuing vague rules, Jim came like a barricade against an assault we did not understand. Though you pay member dues to be affiliated with FINRA and a B/D, you have no voice. The only thing that is truly heard in this un-level playing field is a bulldog’s bark like Jim’s. I would encourage anyone to call Jim and his team to find a real ally in the tough and complicated world of securities regulation. They are truly the best.

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