The SEC’s latest regulation, the Regulation Best Interest is now in effect with firms having to bring their operations into compliance from June 30, 2020. We know firms have worked hard to put in place solutions for the most visible requirement, the distribution of the Form CRS; the Regulation Best Interest is about more than “just” creating and distributing the Form CRS and here at La Meer Inc, we have been working hard on creating a full solution for all of the requirements.
In this short article we will focus on the requirements around Product Governance – what is required for current products and for new product introductions.
As a short reminder, Reg BI mandates four Compliance Obligations:
- Disclosure Obligation: required before, and at the time of recommendation acceptance, and if there are any changes in conditions due to new conflicts or changes.
- Duty of Care Obligation: the exercising reasonable due diligence, care and skill in making recommendations.
- Conflict of interest Obligation: establishing policies and procedures to identify and address conflict of interest.
- Compliance Obligation: establishing policies and procedure to monitor compliance with Reg BI.
It is impossible to discuss the Regulation Best Interest without looking at the firm’s approach to Product Governance. The regulation requires broker-dealers to only recommend financial products that are in their customers best interests, and to disclose any potential conflicts of interest and financial incentives the broker-dealer may have with those products. Importantly the regulation affects the whole of the RIA and broker dealer market in the United States, big and small firms must be able to demonstrate that they have the process in place and are acting in their client’s best interest, in soon expected SEC Examinations.
In order to do this we assess the client’s risk appetite and assign the client to the most applicable risk profile – for example a 401k retirement client will have a completely different profile from an aggressive investor. The GRACE platform allows the firm to create multiple questionnaires which can be filled-out online via the client portal, face-to-face with the client, or even mailed out to the client to complete and return. Whatever way reps use to get the questionnaire to their clients assigning the client the correct risk profile allows the reps to offer products which are deemed appropriate for the client.
La Meer’s GRACE solution provides a complete Product Governance solution for Reg BI:
Standard management and oversight process
Allows the organization to implement a standard management and oversight process for products being sold – recording notes on their risk, reward, expense and fee characteristics along with equivalent alternate choices and their characteristics.
Ensure review process for the product choices for each client risk profile group
Build portfolios with products selected that meet the client profile aligned to their financial objectives and risk tolerances.
Help client facing staff with the ready to go curated risk information on each product to provide to their clients for their approval.
Offering the curated information to registered representatives, advisors and other client facing staff that can be readily used to build the client’s portfolio, and share risk notes with clients for their approval – enabling Reg BI compliant portfolios.
A streamlined process for clients to receive their product and portfolio recommendations and attest their agreement to assure clients know the risks.
Advisors and reps can offer alternatives, notes can be taken and recorded during discussions with the client surrounding alternatives and why these are potentially a better choice for this particular investor. Clients can see the risks on each product in their portfolios in an open transparent way enabling them to know and accept the risk or reject it before investments. GRACE’s workflow allows any alternative suggestions and proposed portfolios to be sent for review and approval by the compliance department or compliance officer. The compliance department can approve on a one-off basis, or can add these alternatives to the approved list for future use.
Review of Product Usage and Oversight
Analysis of products in model portfolio compared to those in the actual portfolio, as well as products of high risk that may have been sold without approval can be analyzed easily, allowing the compliance officer to identify and rectify such violations.
New Product Introduction
For new products being setup or sold for the first time, GRACE enables the product review process and subsequently approved products can then be sold to applicable clients.
Product analytics by Client type, by Registered Rep, by Portfolios type is a very powerful tool to provide meaningful oversight over products, people and processes that are not in the best interest and help the organization to re-align them to safer products based for their clients’ risk profiles.
The La Meer GRACE solution for Regulation Best Interest covers all of the key requirements to demonstrate compliance.
Integrated but Modular GRACE for Client Life Cycle Management
GRACE covers all stages of the client/sale lifecycle – that includes pre-sales lead generation and management, and investment planning, product sales and advice and post-sale processes as well as, of course, the firm’s compliance and monitoring.
Whatever stage you are at with your Regulation Best Interest implementation, the GRACE for Regulation Best Interest module(s) can help you. We cover all key areas:
- Form CRS And Disclosures Management
- Policies and Procedures, Attestation and Training
- Client Relationship and Recommendations Management
- Client Portal
- Client Risk Profile Management and Classification
- Product Suitability and Governance
- Portfolio Oversight Management
- Advisor and Registered Rep Supervision
- Conflicts of Interest Monitoring
The modular nature of the GRACE platform allows our clients to implement (and pay for) only the modules or functionality they need, so if you are having a challenge with one particular area of the regulation we can help, and quickly add the next pieces when you are ready without the need for additional vendors or integration costs. The GRACE platform is 21st century technology, cloud-based, web, tablet and mobile-enabled allowing advisors, clients and compliance officers to interact whenever and wherever they are – essential in working from home or with a distributed workforce. The solution is intuitive and easy to use, empowering staff to work in a compliant way, without unnecessary or complex overheads.
If you are working on your whole solution for day two and beyond we would be like to speak with you to understand the challenges you are having, and to discuss with you how GRACE might help you in easing your Regulation Best Interest demands.
About La Meer Inc.
La Meer Inc., founded in 2010, is a Silicon Valley firm that offers the GRACE Suite of products to addresses a variety of aspects of risk management, from operational risk, compliance management, operational due diligence, client management, KYC, AML, and IT and vendor risk – that address world-wide regulations. Today La Meer is present in the US, Canada, UK and the EU, servicing clients throughout North America and the European Union.
Our team comprises of people with deep subject matter knowledge and technology expertise gained in their extensive global experience, including building and implementing complex systems like the Bombay Stock Exchange on-line trading, credit data warehouse, derivatives technologies, integrated treasury, and corporate and private banking areas. Their experiences include working for major corporations including Citibank, Silicon Valley Bank, and CMC Limited.
GRACE offers comprehensive functionality specifically built to address regulatory needs in the financial segments of banking, asset management, capital markets, and institutional investments. Built on the market leading Oracle stack, availability, reliability, redundancy, resilience, data protection, and data privacy are all inherent in the platform. GRACE’s modular architecture allows firms to have the benefits of a custom solution delivered through configuration of the modules needed to suit their own requirements.
For more information on the product features, please look at our website, or to arrange a demo, feel free to call at (408) 740 7205 or email one of our team at firstname.lastname@example.org
La Meer Inc. A Risk and Compliance Solutions company for Financial Markets. www.lameerinc.com