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SEC Reg BI: Here’s How Hearsay Can Help

It’s been a long time coming, but it’s finally here. Compliance experts have been talking about these changes since April 2018, when our own Deep Kingra participated in a compliance conference where experts discussed how the Securities and Exchange Commission (SEC) would carry forward the “Best Interest Rule” originally promulgated by the Department of Labor. Those experts predicted SEC action in May of 2018. One year later, the SEC finally followed through. On June 5, 2019, the SEC voted 3-1 to raise the bar on the standard of conduct for how brokers and advisors operate. By passing the new Regulation Best Interest (Reg BI), the new Form CRS Relationship Summary, and updating two separate interpretations under the Investment Advisers Act of 1940, the SEC is enhancing “the quality and transparency of retail investors’ relationships with advisers and broker-dealers…while preserving (in terms of choice and cost) a variety of investment services and products.”

Some, like SIFMA President & CEO, Ken Bentsen, say this is a big win for the industry and investors alike, imposing substantial new requirements and ramifications for those found to be out of compliance. Others, like AARP don’t think it goes far enough to protect investors contending the new rules leave too much ambiguity and can easily confuse investors.

Regardless of whether the rules go far enough, there are definite actions firms will need to take before the transition deadline of June 30, 2020. Reg BI and the new advice reform package will require brokers and advisors to change their operations, including mandatory disclosures, marketing materials and compliance systems. The good news, Hearsay customers, is that Hearsay is here to help.

Four Ways Hearsay Can Help with Reg BI Compliance

Pre-approved content: Organizations will soon have an affirmative obligation to demonstrate that certain marketing materials sent to clients serve that client’s best interest. Features such as Hearsay’s Content Library allow Hearsay customers to pre-review and approve content before advisors send those communications to their clients. Customers are able to adapt their current work activities to Reg BI requirements without substantial change management.

Proof of action: Organizations will now have to affirmatively prove that an organization is serving a customer’s best interest. Hearsay Cloud’s compliance layer helps here by archiving all communications sent by advisors through Heasay software, allowing organizations to not only show records of communication, but to show those records within the context of the full conversation between the advisor and client.

Profile automation API: Reg BI also placed emphasis on mandatory disclosures and how advisors market themselves to the general public. This will have a concrete impact to advisor profiles on social media and biographical information on an advisor website. Organizations will need technological assistance to ensure continued compliance with these requirements. With the soon to be released (Q3 2019) profile automation API, Hearsay customers will be able to analyze and update broker / advisor profiles at scale. Profiles include Facebook, LinkedIn, Twitter, Instagram and advisor websites.

Professional Services engagement: In a recent audit of one client’s field social profiles, the client discovered only 11% had mandatory disclosures included. Reg BI will not leave room for that kind of lax compliance. The Hearsay Professional Services team can help you determine what your specific Reg BI challenges are and how we can help.

Are there other ways you can think of that we haven’t discussed here? Reach out to your customer success manager to learn more.

Christopher Fernandes

Christopher Fernandes joined Hearsay in 2015 and is responsible for the company’s legal affairs including commercial, compliance, regulatory and privacy matters. Chris earned his J.D. from Santa Clara University and B.A. from the University of Chicago.

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