In an era marked by increased scrutiny and regulatory demands, the practices employed by financial firms to evidence their best interest recommendations have taken center stage. A recent webinar hosted by COMPLY and InvestorCOM gave insight into the methods compliance professionals are utilizing to evidence their firm’s recommendations.
During the webinar, the audience of compliance professionals serving financial advisory firms were polled about how they were evidencing their best interest recommendations. The results?
Manually – 64%
Technology enabled – 21%
Do not maintain documentation – 9%
The importance of evidencing best interest recommendations
These results indicate a significant reliance on manual methods, albeit with a noticeable shift towards embracing technology.
The act of evidencing best interest recommendations is not merely a procedural requirement; it’s a fundamental pillar of accountability, transparency and ethical practice – and underscoring it all, a compliance requirement.
The Securities and Exchange Commission (SEC) introduced regulation best interest (Reg BI) to enhance the standard of conduct for broker-dealers, imposing a “best interest” obligation when making investment recommendations. With these requirements come:
- Disclosure obligations.
Reg BI mandates clear and comprehensive disclosure of material facts about the client-advisor relationship, including conflicts of interest and potential costs.
- Duty of care and loyalty.
Under Reg BI, firms are required to exercise diligence, care, skill and prudence to understand the potential risks and rewards of a recommendation. They must also prioritize the client’s interest over their own.
- Form CRS.
The Form Customer Relationship Summary (Form CRS) is a new document that must be delivered to retail investors, outlining key aspects of the client-advisor relationship, services offered, fees and more.
- Recordkeeping requirements.
Reg BI emphasizes the importance of maintaining records that demonstrate compliance with its requirements, including the basis for recommendations and any associated conflicts of interest.
Furthermore, the SEC has emphasized its seriousness with Reg BI most recently through a bulletin, outlining how firms can best adhere to these requirements and confirming investment adviser’s fiduciary obligation.
With that said, the evolving regulatory landscape, and an increasingly discerning clientele, demand more than verbal assurances. Evidencing recommendations is, at its core, a testament to your firm’s commitment to acting in the best interest of its clients. It serves as a protective shield, fending off potential disputes, legal challenges and regulatory inquiries. In an age of fiduciary duty and client-focused finance, robust documentation isn’t an option. It’s an imperative.
Evidencing solutions: Automating your processes
Your firm must be able to provide thorough assurance that it’s acting in the best interest of its clients. Enter in automation. Automating your firm’s evidencing can dramatically enhance its ability to record, store and retrieve critical documentation.
Automation adds a layer of efficiency and accuracy that manual methods often struggle to provide by:
- Analyzing thousands of data points and delivering optimal compliance investment recommendations to investors, enabling your firm to deliver on your promise.
- Tracking all, organization-wide activity and relevant notes to ensure ongoing compliance.
- Offering powerful integration capabilities to facilitate data connections between various platforms, enhancing communications, increasing efficiency and providing a seamless customer experience.
- Streamlining processes and increasing accuracy for registered investment advisers and their firms.
- Providing a convenient, mobile-first, frictionless experience for you and your employees, making compliance easy and painless.
For firms keen on an all-encompassing solution to bolster their evidencing practices, COMPLY stands as an indispensable ally. Learn more about the COMPLY consulting services and solutions and how we can help your firm avoid violations, prepare for regulatory changes, update your policies and procedures and more!