The SEC’s latest regulation, the Regulation Best Interest (Reg BI) is now in effect with firms having had to bring their operations into compliance from June 30, 2020, and SEC examination notices now going out. In this short article we will focus on the requirements how to manage conflicts of interest and disclosures in line with the Reg BI expectations, and, of course, how La Meer’s GRACE platform provides a full solution for this, and all of the regulation requirements.
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.
Conflicts and Disclosures Management
Reg BI demands that the organizations keep track of all of their business conflicts as well as those of their associated persons which must be revealed to clients in disclosures. Disclosures enable clients to know, and understand where conflicts exist within the organization they are choosing to handle their investments, and how the recommendations they are receiving could be conflicted.
La Meer’s GRACE platform enables you to gather and manage all your conflicts of interest information in one place, and to classify it based on whether it is for a product, a particular security or instrument, a client type, for an individual staff member or associated person, for business with its service providers, or third parties they have relationships with, or for the products and services the Broker-dealer offers through their firm. Business function owners can report conflicts in GRACE as and when these occur or they are made aware of them performing their roles and responsibilities.
Associated persons can request for pre-trade approvals and private placements, report their gifts, political contributions, outside activities and remunerations received by them for activities outside of the firm’s offerings, as well as any other conflicts they are mandated to report to compliance.
GRACE’s Conflicts Management functions include receiving, reviewing and recording conflicts, recording steps taken to eliminate, manage, mitigate, or disclose to the clients. Conflicts information can be reviewed by internal groups and mitigation, management steps discussed and final conclusions drawn and recorded on each conflict. For conflicts that need to be reported to clients, they can be tagged and revealed to clients in the Form ADV, Form CRS and other mandatory client reporting.
Reg BI expects detailed disclosures to be provided to clients at various stages in the client lifecycle, from the point where a possible recommendation is offered, thru account opening, changes in portfolio structure, and portfolio agreement and review.
Disclosure information may be included in standard disclosures like the Form ADV part I, part II, and Form CRS, as well as in product and security specific disclosure and conflicts of interest documents. Disclosures could also include disciplinary history, whether it be for the firm, or for those specific associated persons that relevant to the client.
GRACE coordinates the creation and management of the disclosure documents, their classifications by client type, products, instrument or security, client, associated person and others. Disclosures can be created, classified and sent for review internally, with a full audit trail, to arrive at a reviewed and approved version ready for release.
Associated persons and client management staff can access the released documents for their particular client types, clients, and their current product and security choices, and have the ability to distribute to clients via email at the click of a button. The documents can be sent as email attachments, or as links that the clients can access, allowing a record of receipt and acknowledgement to be generated.
GRACE keeps track of the documents sent and the status of client acknowledgement allowing the firm to ensure all relevant disclosure have been shared with clients at the appropriate time. Dashboards allow analysis by status of receipt, documents created for various client types, and other such information for easy tracking.
Benefits of the Approach
- Easy web based/mobile forms can help associated persons report their information to compliance for review.
- An organized approach to identifying, and managing conflicts in a master conflicts database will ensure that client preferences are better understood, and any new product introduction can be checked against the data preventing any potential problems.
- GRACE offers the easy way to manage what you have disclosed, who has received it and if they acknowledged it.
- The process of distributing disclosures to clients can help you build a clean golden source of client information, with their email addresses, postal addresses and their product preferences and constraints.
- By using an integrated approach to client management, audit trails, conversations and transactional information, you can identify what other conflicts exist which may have been difficult to identify if the data was held in multiple system like a separate CRM, a separate disclosures system, a separate compliance system, and a conflicts monitoring system.
- Managing conflicts of interest with GRACE allows proper monitoring and management of Conduct Risk within the firm, that can stand you in good stead for compliance examinations.
GRACE has everything you need in one place
La Meer’s GRACE platform has all the functionality you need to create, review, manage, approve and distribute disclosures required by the Regulation Best Interest, keeping an audit trail that all actions were correctly carried out.
Regulatory examinations are easily taken care of when all the required information is in one place, and a firm can demonstrate that it has taken its obligations seriously and really is acting in the best interests of its clients!
GRACE for Regulation Best Interest
Whatever stage you are at with your Regulation Best Interest implementation, the GRACE for Regulation Best Interest solution 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
- Disclosures Management
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.