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The SEC’s Regulation Best Interest

What you should know and what to do about it.

The Securities and Exchange Commission (SEC) passed Rules and Regulation Best Interest (Reg BI) in early June. While it won’t go into effect until June of 2020 (and will likely be challenged between now and then), the final Reg BI consists of 1,363 pages making it difficult to understand or simplify.

In this short piece, we’ve done our best to summarize the goal of Reg BI and to outline action items for consumers.

The ultimate goal of the regulation is to raise the bar on the quality of advice from financial professionals (specifically those associated with broker/dealers which are typically compensated by commissions) by requiring them to put their client’s interests ahead of their own. It’s difficult for consumers to identify a quality financial professional from the pack of individuals who hold themselves out as advisors. Reg BI will require additional disclosures which some hope will help with this problem. While we believe this regulation moves the ball in the right direction, it’s by no means perfect.

Important things to Note:

  • An advisor who is a representative of a Registered Investment Advisor (RIA) is already required to operate as a fiduciary and put their clients’ interests first (this includes all advisors at PYA Waltman Capital). Advisors who are associated with a broker/dealer rather than an RIA are not required to act as a fiduciary, which can allow room for conflicts of interest.
  • While Reg BI will require financial professionals associated with Broker/Dealers to put their clients’ interest ahead of their own, it only applies to an individual transaction or recommendation, i.e., at that point in time. This means it is not an ongoing or holistic responsibility as compared to a fiduciary relationship where an advisor takes their clients’ total financial picture—past, present and future—into account when they make a recommendation in their client’s best interest.
  • Reg BI will prevent financial professionals of broker/deals from referring to themselves as “advisor” or “adviser.” But, this may not help consumers with weeding through the chaff as those individuals could still refer to themselves as “wealth managers” or “retirement planners”, etc.

Action Items for Consumers:

  • Ask if your advisor is a Fiduciary. If the answer is not a simple “yes,” dig deeper to consider if they’re putting your interests first—always.
  • Ask how your advisor is paid. If it’s difficult to understand or they are compensated based on what investments or products they recommend to you, dig deeper to make sure you’re confident they’re working without conflicts of interest that could impair the advice they give you.
  • Ask where your money is held. If it’s not held at a third-party custodian such as Fidelity or Vanguard, dig deeper. For your protection, it’s imperative that you understand how your money is held and why.
  • Understand your advisor’s credentials. The most respected credentials in the industry are CFP®, CPA and CFA®. Advisors with these credentials show they’re willing to put forth the time, effort and resources to best advise you. Each credential has a code of ethics and requires extensive studies, testing and ongoing education to maintain the marks.

PYA Waltman Capital, LLC is a Registered Investment Advisor and its advisors have always acted as fiduciaries, putting our clients’ interests above our own. It’s the reason our founders separated from a broker/dealer in 2005. Bill Waltman and Eric Foster’s goal was to set the client service bar high. We welcome the goal of Reg BI and hope that in time more and more financial professionals will aim higher for the protection of consumers.

The opinions expressed are those of PYA Waltman Capital, LLC. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward looking statements cannot be guaranteed. 
PYA Waltman is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about PYA Waltman’s investment advisory services can be found in its Form ADV Part 2, which is available upon request.
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