Regulation Best Interest: How Broker-Dealers Can Achieve Compliance with eMoney Advisor

On June 5th, 2019, the Securities and Exchange Commission (SEC) adopted Regulation Best Interest: The Broker-Dealer Standard of Conduct (Reg BI) to tighten the guidelines surrounding client care for broker-dealers.

Reg BI expands upon the suitability rule currently in place, giving investors broader protection from biased financial recommendations. Going into effect in June 2020, broker-dealers must quickly determine how they’ll comply with Reg BI.

What is Reg BI and What’s New for Broker-Dealers?

The regulation requires broker-dealers to act in the best interest of “retail customers,” defined as a person acting for his or her own account, including individual plan participants, where recommendations are used for personal, family, or household purposes. The regulation does not apply to those who are represented by a professional advisor or other fiduciary.

To properly act in a client’s best interest, broker-dealers must adhere to four obligations:

• Disclosure Obligation. A broker-dealer must disclose, in writing, all the “material facts” about its recommendations and its relationship with the customer. This disclosure must state that the firm is acting as a broker-dealer, the material costs to the retail customer, the scope of services provided, and any conflicts of interest.

• Care Obligation. A broker-deal must exercise “reasonable diligence, care and skill” when making a recommendation to a retail customer. Risks and rewards have to be thoroughly evaluated, and there must be a reasonable basis for believing a recommendation is in the best interest of a retail customer.

• Conflict of Interest Obligation. A broker-dealer must disclose or eliminate conflicts of interest. Specifically, the regulation requires broker-dealers to mitigate anything that may incentivize financial professionals to act against the best interest of the client, such as sales contests and bonuses. It also mandates firms prevent “material limitations” on offerings that could lead to recommendations not in a customer’s best interest, such as a limited product menu or offering only proprietary products.

• Compliance Obligation. A broker-dealer must put into place procedures that are “reasonably designed to achieve compliance with Regulation Best Interest.” Essentially, broker-dealers must be able to demonstrate their commitment to complying with Reg BI.

In addition to the four obligations above, broker-dealers must also provide retail customers with a client relationship summary document (Form CRS). The form discloses information about “services, fees and costs, conflicts of interest, legal standard of conduct, and whether or not the firm or its financial professionals have disciplinary history.” Form CRS will have a standard question and answer format to help investors compare broker-dealers.

For broker-dealers, the standard of conduct is being raised. They must reevaluate core service offerings to ensure compliance with Reg BI. With the June 2020 implementation date rapidly approaching, broker-dealers need to develop a plan of action immediately.

How eMoney Advisor Helps Broker-Dealers Achieve Reg BI Compliance

eMoney has always believed in the value of financial planning, and now, the argument for using planning as the basis of a fruitful relationship with clients is stronger than ever. Best Interest obligations related to disclosures, client care, conflicts of interest, and compliance all occur in the context of a financial planning relationship.

Reg BI has reaffirmed eMoney’s commitment to a planning-led approach. There are multiple ways in which the eMoney platform helps broker-dealers achieve compliance:

Financial Planning Capabilities

Our mission of “helping people talk about money,” and our vision of financial peace of mind for all, runs through our entire product strategy—starting with planning at the core of everything we do. We are committed to helping all advisors have deeper conversations with their current and future clients for years to come. From goals-based to advanced cash flow planning, our solution enables firms to scale planning across their client bases. Advisors can develop plans that will benefit clients at any life stage, and any level of financial sophistication. Plans can evolve as the investors’ needs change, helping advisors have the right conversations with the right amount of detail, all based on the clients’ needs, and all within a single planning platform. Through a single planning solution, broker dealers can comply with the care obligation and act in the best interests of retail customers.

Client Portal

eMoney Client Portal encourages meaningful collaboration with customers by providing consolidated views of their entire financial pictures. This collaboration not only deepens engagement but ensures the customer’s best interest is at the forefront of all decision making. eMoney is also custodian-agnostic, integrating with multiple custodians through both our aggregation services and our in-app integrations, helping broker-dealers avoid material limitations outlined in the conflict of interest obligation.

Account Aggregation

The eMoney platform includes aggregation capabilities from thousands of financial institutions and data providers through our integrations, connections, and API functionality. Utilizing aggregation functionality throughout both the advisor and client experiences provides broker-dealers access to the most accurate data surrounding a customer’s portfolio. This provides a reasonable basis for making best interest financial decisions.

The Vault

eMoney Vault provides unlimited, secure storage of important client documents that are accessible from both the advisor and client portals. This safe, secure area offers broker-dealers an ideal channel for sharing all necessary disclosures under the disclosure obligation, as well as Form CRS when making financial recommendations.

Advisor Assurance

Advisor Assurance enables broker-dealers to streamline their compliance efforts by documenting and archiving key customer interactions. With data exports available at any time, this allows broker-dealers to demonstrate their adherence to Reg BI and fulfill the compliance obligation.

Financial Planning with eMoney Helps Achieve Reg BI Compliance

Reg BI changes the game for broker-dealers. In June 2020, the guidelines regulating client care will be stricter than ever. Broker-dealers need to transition to a planning-centric business model with a best interest culture.

Rooted in holistic financial planning, eMoney solutions strengthen client relationships, streamline business operations, enhance business development, and provide compliance solutions to help broker dealers operate in a fiduciary-first environment.

See for yourself how eMoney can help with compliance and start your free trial of eMoney Advisor today.