Reg BI: Mapping the Technology Solutions Landscape

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21 June 2020


Set to go into effect on June 30, Reg BI requires US broker‐dealers to adhere to a best interest standard of care when making a recommendation on any securities or investment strategy. While the term “recommendation” is left undefined, regulators historically have interpreted it as communication providing personalized investment advice.

Reg BI also includes specific broker obligations; the most noteworthy of which is the Duty of Care provision, which flags issues of cost and mandates that all reasonably available product alternatives be considered when making a recommendation. A balanced product shelf will logically support this requirement. Since product assessment must be made at the time of the recommendation, and not in hindsight, tools for monitoring and surveillance at the position level also must be in place.

In a Reg BI world, there can be no blanket recommendations; all solutions must reflect the individual interests of the client. This heightened burden of care means that complex expense calculations must be factored into more elusive and dynamic factors, such as client retirement goals. BDs have been forced to think critically about the kinds of client, market, trading, and other information they must source, and how they process and deploy it to their sales forces.

The good news is that vendors are in place to help tackle these diverse needs. The bad news is that there is no one-stop shop. The absence of a single vendor able to meet the operational and functional requirements of Reg BI and the difficulty of aligning vendor tools to in-house processes has meant legwork for broker-dealers in identifying the right solutions. These challenges will escalate as attention shifts from meeting the baseline, or Day 1, requirements of Reg BI to a focus on Day 2.