Embarking on the journey of recommending investments and accounts is a crucial part of a financial advisor’s role. However, it goes beyond just suggesting which account to open. The heart of the matter lies in data gathering – the powerhouse that allows us to make well-informed decisions on behalf of our clients. The more robust the data, the sharper and more effective our recommendations become. This dynamic process is the lifeblood of client interactions, requiring consistent check-ins due to its ever-evolving nature.
Beyond the client-centric perspective, meticulous data collection holds paramount importance for compliance. It serves as the backbone, enabling advisors to argue that, under my current understanding, this was the best decision for the client. Enter the SEC’s Regulation Best Interest (Reg BI), setting the gold standard for advisors when recommending investment strategies, accounts, and products. Complying with Reg BI not only meets regulatory requirements but significantly elevates the client experience. Comprising Care, Disclosure, Conflict of Interest, and Compliance, these obligations collectively shape and enhance the overall client journey. In this blog, we’ll delve into the profound impact each obligation has on optimizing the client experience.
Clients See More Care
Under the care obligation, broker-dealers must exercise reasonable care, diligence, and skill when making a recommendation to a client. That means advisors can’t simply recommend the same products and investments to every client regardless of their financial situation — they must perform due diligence and consideration to act with each client’s best interest in mind. That level of care means clients can be more confident in recommendations from their broker-dealer because they know they were prepared with care and skill.
The care obligation also means that advisors have to look at the risks and rewards of each account and share them with clients, as well as the cost of each recommended product. Clients have all the information they need to make an informed decision they know will help them reach their financial goals.
Clients Can Have a Clear View of Investment Options
Under Reg BI, advisors must analyze and document many aspects of the product and investment at the time of the recommendations, not afterward. Analyzing and recording recommendations in real-time creates a better client experience, as clients have the best and most accurate information and are empowered to make the best investment decisions.
The disclosure obligation also requires advisors to disclose facts and details about each product recommendation so clients can fully understand their options. To meet Reg BI rules, many advisors have turned to automating the analysis and disclosure process, which moves the process along faster and boosts the client experience.
Conflicts of Interest Assessed
When staying compliant with Reg BI, advisors must disclose any potential conflicts of interest, such as if they have a financial stake in the product they are recommending or if it contradicts the client’s current financial goals. At a minimum, advisors need to identify conflicts of interest. Reg BI also encourages them to eliminate those conflicts, such as by removing sales quotas, bonuses, and non-cash compensation related to specific types of accounts or investments.
Avoiding conflict of interest gives clients an accurate and complete view of every financial option. Instead of feeling pushed in a particular direction by their advisor, clients can have all the information to make the best decision for their financial goals — not their advisor’s paycheck.
Clients Trust that Advisors are in Compliance
Staying in compliance is typically related to broker-dealers and their firms. However, staying in compliance boosts a firm’s reputation and ensures clients that their data is secure and protected. As broker-dealers follow Reg BI’s compliance rules, they have to follow the policies and procedures to maintain records and follow the established rules. Keeping compliance top of mind builds a stronger and more trusting relationship between clients and their advisors.
Reg BI protects clients and helps broker-dealers provide a better and more personalized client experience. But as Reg BI evolves, advisors and firms of all sizes must continually adjust their approach and leverage technology to streamline the recommendation and pre-trade activity process to stay compliant and provide an excellent client experience.
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Vice President, Client Solutions | Docupace
