The aging of the Greatest Generation and the Baby Boomers is highlighting the difficulties resulting from the cognitive decline of the investors of those generations. The inability of some of those senior investors to understand and process financial information is inconsistent with our self-reliant investing culture, which is largely based on disclosures in lengthy documents. Part of the burden is being placed on advisors due to the new best interest standards for broker-dealers and insurance brokers and agents. In addition, the SEC has heightened the expectations of the existing best interest standard for investment advisers. In addition to the burdens, there are also opportunities for advisors to help protect senior investors from financial abuse.
Category Archives: broker-dealers
Best Interest Standard of Care for Advisors #28
Regulation Best Interest, RIA Interpretation and Consideration of “Account Types” (Part 4)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
In my last three posts (Best Interest for Advisors #25, #26 and #27), I have discussed the SEC guidance for broker-dealers and investment advisers about recommendations of “account types.” The articles explained that investment advisers are subject to the best interest standard for recommending account types (since July of last year) and broker-dealers will be subject to the new best interest rules for recommending account types beginning June 30 of this year. Those articles discussed the rule, the definition of account types, and the process required to evaluate account types. This article discusses examples given by the SEC about the application of the best interest standard when considering account types.
Continue reading Best Interest Standard of Care for Advisors #28
Best Interest Standard of Care for Advisors #27
Regulation Best Interest, RIA Interpretation and Consideration of “Account Types” (Part 3)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
Regulation Best Interest (Reg BI) and the Interpretation Regarding Standard of Conduct for Investment Advisers (RIA Interpretation) require that broker-dealers and investment advisers evaluate the “account types” their firms offer—in light of the investor’s investment profile—to make a best interest recommendation. In other words, both types of firms, and their advisors, must first consider the account type that is appropriate for the investor.
Continue reading Best Interest Standard of Care for Advisors #27
Best Interest Standard of Care for Advisors #26
Regulation Best Interest: Recommendations of Account Types (Part 2)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
In my last post (Best Interest for Advisors #25), I discussed the SEC guidance for broker-dealers and investment advisers on recommendations of account types. The article explained that investment advisers are subject to the best interest standard for recommending account types (since July of last year) and broker-dealers will be subject to the new best interest rules for recommending account types (beginning June 30 of this year).
The focus of the article, though, was to define what an account type was. As the article explained, “account type” is to be interpreted very broadly and includes many programs and accounts that may not obviously be considered types of accounts. As a result, the first compliance step for broker-dealers and investment advisers is to identify all of the account types they offer. Then those firms can develop the processes for their advisors to consider the types of accounts (and compare different types of accounts) offered by the firm . . . in light of the investor’s needs. (The rules apply to retail customers of broker-dealers and all clients of investment advisers.)
Continue reading Best Interest Standard of Care for Advisors #26
Best Interest Standard of Care for Advisors #25
Regulation Best Interest, RIA Interpretation and Consideration of “Account Types” (Part 1)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
Regulation Best Interest (Reg BI) and the Interpretation Regarding Standard of Conduct for Investment Advisers (RIA Interpretation) require that broker-dealers and investment advisers evaluate the account types their firms offer—in light of the investor’s investment profile—to make a best interest recommendation. In other words, both types of firms, and their advisors, must first consider the account type that is appropriate for the investor. That raises the obvious question of “What is an account type?”
Before answering that question, let’s look at what the SEC said about the need to consider account types as a part of a best interest process.
Continue reading Best Interest Standard of Care for Advisors #25
Best Interest Standard of Care for Advisors #24
Regulation Best Interest: Rollover Recommendations for Pension Plan Benefits (Rollovers Part 8)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
This is the 8th of my series of articles about rollover recommendations and rollover education under the SEC’s Regulation Best Interest and its Interpretation for Investment Advisers. (For the first seven, see Best Interest for Advisors #’s 15, 16, 17, 18, 19, 20, and 21.)
The first seven of these rollover articles have, by and large, related to rollover recommendations and education for participants in 401(k) plans. But, of course, there are other types of plans…for example, ESOPs, cash balance plans, profit sharing plans, and defined benefit pension plans. This article looks at rollover recommendations to participants in defined benefit plans and concludes that rollover “education” may be the more practical approach.
Continue reading Best Interest Standard of Care for Advisors #24
Best Interest Standard of Care for Advisors #21
Regulation Best Interest: Rollover Recommendations and Mitigation of Advisor Incentives (Rollovers Part 7)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
This is the 7th of my series of articles about rollover recommendations and rollover education under the SEC’s Regulation Best Interest and its Interpretation for Investment Advisers. (For the first six, see Best Interest for Advisors #’s 15, 16, 17, 18, 19 and 20.)
This article deals with the Reg BI requirement that broker-dealers mitigate the incentives that might induce their advisors to make rollover recommendations that are not in the best interest of participants. Specifically, that requirement (which applies on June 30, 2020) is:
Continue reading Best Interest Standard of Care for Advisors #21
Best Interest Standard of Care for Advisors #20
Regulation Best Interest: Rollover Recommendations and Form CRS/ADV Part 3 Disclosures (Rollovers Part 6)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
This is the 6th of my series of articles about rollover recommendations and rollover education under the SEC’s Regulation Best Interest and its Interpretation for Investment Advisers. (For the first five, see Best Interest for Advisors #’s 15, 16, 17, 18, and 19.)
This article continues the discussion of the disclosure requirements related to rollover recommendations by broker-dealers and investment advisers, but moves from the discussion in Best Interest for Advisors #19 about the disclosure requirements in Reg BI and the RIA Interpretation to the requirements in the new Form CRS Rule (which must be satisfied beginning June 30, 2020).
Continue reading Best Interest Standard of Care for Advisors #20
Best Interest Standard of Care for Advisors #19
Regulation Best Interest: Rollover Recommendations for Investment Advisers (Rollovers Part 5)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Rule, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
This is the 5th of my series of articles about rollover recommendations and education under the SEC’s Regulation Best Interest and its Interpretation for Investment Advisers. (For the first four, see Best Interest for Advisors #’s 15, 16, 17 and 18.)
This article discusses the disclosure requirements for conflicts of interest involved in rollover recommendations by broker-dealers and investment advisers. Let’s start by pointing out why a rollover recommendation is a conflict of interest.
Continue reading Best Interest Standard of Care for Advisors #19
Best Interest Standard of Care for Advisors #17
Regulation Best Interest: Education vs. Recommendation (Rollovers Part 3)
The SEC has issued its final Regulation Best Interest (Reg BI), Form CRS Regulation, RIA Interpretation and Solely Incidental Interpretation. I am discussing the SEC’s guidance in a series of articles entitled “Best Interest Standard of Care for Advisors.”
In my last post, Best Interest for Advisors #16, I pointed out that, if a broker-dealer’s advisor recommended that a participant rollover his or her benefits in a workplace retirement plan to an IRA, it would be subject to the best interest standard of care (when Reg BI applies on June 30, 2020). (Best Interest for Advisors #15 discussed the process and factors to be considered to make a best interest rollover recommendation.)
My last post then went on to discuss rollover education and information . . . as opposed to a rollover recommendation. If properly done, the education and information approach can be used by broker-dealers if they are concerned about the difficulty of gathering the information for a rollover recommendation and the process for evaluating that information.
Continue reading Best Interest Standard of Care for Advisors #17