How Financial Professionals are Thriving under Reg BI

Over the past decade, the wealth management industry has grappled with a fair share of regulatory change. For many, the mushrooming regulatory change is no longer an exception, but an expectation. In the past year, many wealth managers and financial professionals were focused on meeting the requirements of Regulation Best Interest (Reg BI). In summary, Reg BI aimed to elevate the level of client stewardship by enhancing four key obligations: Care, Disclosure, Conflict of Interest, and Compliance. It has been a year since Reg BI came into effect and the industry has taken gradual steps to innovate and meet regulatory demand head-on.

Technology-assisted Decision Making

Reg BI’s care obligation means financial professionals must evaluate reasonably available alternatives (RAA) for each client recommendation. This means they must determine the merit (cost, risk, and return) of other, similar investments to ascertain whether a security recommendation (or investment strategy) is in the best interest of each customer. To compliantly evaluate RAA for clients, financial professionals must study as many as one million data points, a challenge that cannot be effectively met manually. Financial professionals see the benefit of allowing technology to support their decisions and recommendations instead of it getting in the way.

Low-cost solutions are not necessarily the best option for clients and head-to-head comparisons of products are also insufficient. Instead of leaving financial professionals guessing what to compare, a peer-oriented framework allows comparison of the cost, risk, and return of an investment against an entire group of reasonably available alternatives automatically, effortlessly, and consistently.

Finding the Documentation Sweet Spot

Financial professionals need to document their recommendations; however, reliance on CRM, spreadsheets, and manual checklists are onerous, can lead to inconsistencies in data and reporting, and make it difficult to provide oversight.

Automation has been key to the streamlining of these processes with software solutions that document recommendations at the time of comparison, not after. Rob Dearman, CEO and Chief Innovation Officer of DCG Insight says, “the use of a purpose-built compliance platform specifically designed for making compliant recommendations, documentation and reporting allows broker-dealers to meet the many facets of their best interest obligations with minimal training time, intuitive programming, and easy implementation. Replacing manual paper-based processes with digital recordkeeping is essential to remaining compliant in an era of remote work. These efficiencies allow advisors more time with their clients, growing their book of business, and bringing them back to the primary focus of their jobs – helping their clients meet their financial goals.”

Shifting the Compliance Bottleneck Paradigm
Financial professionals are beginning to receive requests from the U.S. Securities and Exchange Commission’s (SEC) examiners to justify and explain the investment recommendations of their registered representatives. It’s been reported that the SEC examiners are looking for patterns of complaints, how these complaints relate to the quality of recommendations set out by financial professionals, the consistency of how recommendations are made, and how the firms monitor and address client-related concerns. Again, automation is key to recommendation consistency.

Disclosure Done Right
Paperwork is a costly overhead expense for any business. By embracing the SEC’s allowance of electronic disclosure documentation to clients, firms enjoy an efficient and environmentally friendly approach to compliance. Automated solutions reveal when a client has received, opened, and read the correspondence while keeping the latest information and records available at the fingertips of financial professionals, and the compliance officers reporting to the SEC.


Published in 2021 Midyear Outlook.