Industry publication BenefitsPro looked to four Drinker Biddle partners for guidance on new requirements under Reg BI — the Disclosure, Care, Conflict of Interest, and Compliance Obligations — that will have to be met irrespective of whether a broker-dealer offers ongoing monitoring of a retail client’s assets.
In the article “Broker-Dealers Already Behind the Ball in Prepping for Reg BI,” the publication said that the Securities and Exchange Commission’s new conduct standards for broker-dealers, clarifying rule on investment advisors’ fiduciary obligations, and new disclosure requirements that go into effect June 30 of 2020 will impact nearly all aspects of the investment and retirement services industry.
“It’s a very aggressive schedule for implementation,” said partner Sandra Dawn Grannum, co-chair of the firm’s Commercial Litigation Team. “There is no reason to believe that implementation of the rules will be put off.”
The sheer scale of the new rule will require firms to quickly implement new practices and compliance oversight, with less than a year on the clock.
“My gut-level feeling for broker-dealers is you are already behind schedule,” said Fred Reish, chair of the firm’s Financial Services ERISA Team and chair of the Retirement Income Team. “There is so much there, it’s going to be really hard to get in compliance.”
In the article, SEC & Regulatory Enforcement Team partner James G. Lundy noted that fiduciaries already operate under a duty to monitor their clients’ assets.
“That is an active duty,” he told BenefitsPro of RIAs’ obligations. “But with wrap accounts, monitoring may not be active. We are seeing examiners reassess whether it is appropriate for clients to be in wrap accounts if they are not active. Firms should look closely at that.”
House Democrats could potentially short circuit enforcement, with Financial Services Committee Chairwoman Maxine Waters successfully attaching an amendment to recent appropriations legislation that would defund the SEC’s ability to enforce Reg BI.
That will likely not survive in the Senate, according to Bradford P. Campbell, a partner in the firm’s Employee Benefits and Executive Compensation Group.
“I don’t think the SEC will be hindered from enforcing its rules,” Campbell told BenefitsPro, noting that the defunding measure could possibly survive as Congress scrambles to pass legislation funding the government for the next fiscal year. “It’s a credible threat, but I doubt it will happen in the final analysis.”
“This is huge,” Reish said, summing up the impact. “The first thing a firm should do is sit down with its attorneys. My general view is that people don’t realize how much has to be done, and how short one year is.”
Read “Broker-Dealers Already Behind the Ball in Prepping for Reg BI.”