Views on improving the integrity of global capital markets
08 August 2019

Investors Unite! The Antidote For A Weak Reg BI

Posted In: Fiduciary Duty

This blog was co-authored by Daniel Lee, Advocacy and Policy Research Intern. It originally appeared on

The eager pursuit of commissions and fees, often at the expense of the consumer using their services, has put the global investment management industry under a regulatory microscope. The mis-selling of financial products, especially by brokers using the honorable title of “financial advisor,” has at times seemed unethical in terms of the treatment of customers. Just recently, the Securities and Exchange Commission (SEC) offered a fix, of sorts.

Nine years after Dodd-Frank gave it the go ahead to create a semi-uniform fiduciary standard for brokers and investment advisers, the SEC finally acted this summer with its recent broker advice rule, “Regulation Best Interest,” (Reg BI). Reg BI regulates brokers and other financial advice givers to hold them to higher standards when it comes to customers. Reg BI, as it’s known, requires brokers who give investment advice to act in their clients’ best interests and not in their own interests or the interests of their employers.

Reg BI also mandates that brokers and investment advisers give their clients their Form CRS (Client Relationship Summary). The CRS is supposed to present plain-language communication about what investors should expect from their investment professional. All good, in theory.

The problem is that Reg BI falls far short of its stated goal.The rule is intended to ensure brokers are working in their clients’ best interests. Unfortunately, it is a buyer beware system in disguise. Investors must have the knowledge and understanding to protect themselves.  Otherwise, the saga of Wall Street-sales practitioners taking advantage of retail and retirement savers by offering products and advice that serve their brokers’ commercial interests will drone on.

Despite these problems, we are convinced it is time to move toward a more practical reality.Investors must learn what they need to know to navigate through this process.

Simply put, we spend more time shopping for the best refrigerator deals than we do looking for products to meet our financial needs. Retirement is far off. We understand. The problem is that average savers have delayed implementing both disciplined savings plans and learning the basics of being financial consumers. –Seeing whether you will have adequate savings is scary and life-altering.

With these issues in mind, here is a modest proposal. The next time you meet with your investment professional, whether at a bank, with your company’s benefits expert, or someone else, ask questions. Think of it as being on the salesfloor at a car dealership, asking critical facts about your next car. The products and questions are different, but the dynamics are the same. You want the best product for the best price for your circumstances.

Here is what you need to ask when you step into the financial showroom.

As my advisor please tell me the following:

  1. When you use the title, “adviser,” does that mean are you a registered investment advisor? Or are you a salesperson, acting as an agent of XYZ Financial services?
  2. When you suggest financial products to me, will you have conflicts of interest such as selling only the products your firm has created? How will that affect me? Will I pay higher fees?
  3. Can I have your word you will avoid more expensive financial funds or products when a product of similar quality, performance, and lower cost is available?
  4. Can you help me choose the best value-for-money products, or are you limited to your firm’s products?
  5. Can you explain whether I pay you a fee or commissions as compensation? And please explain to me the difference in how that works.
  6. Please tell me in plain terms the material conflicts of interest you have in giving me advice. How would you protect me from paying too much and receiving too little because of those conflicts?
  7. Can you explain all the fees involved in this investment fund or product? If you put me into a mutual fund, how much am I paying you for helping me buy the fund? How much am I paying the fund manager? Are these one-time or ongoing fees?
  8. Does the fund company pay you extra to recommend their products? If so, how much and can you mitigate your conflict so I am treated fairly?

Don’t be afraid to shop around if you get lousy or unclear answers. This will make it easier to compare firms and pick better advisers who will truly act in your best interests.

You just need to know the basics. There are dozens of investment professionals seeking your business, so why not hold them to a higher standard. You will come to recognize those who do not operate ethically, who prey on your lack of knowledge, and who cut corners in serving you.

These simple 8 questions will help you become a savvier financial consumer and send a message to the best-interest imposters. Buyer beware indeed.


Image Credit: zoranm

About the Author(s)
Kurt Schacht, JD, CFA

Kurt Schacht, JD, CFA, is the Senior Head, Advocacy Advisor, Capital Markets Policy at CFA Institute, where he oversees advocacy efforts and the development, maintenance, and promotion of the highest ethical standards of practice for the global investment management industry.

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