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Sunday, April 18, 2021

Here’s What The SEC Is Looking For In It’s First Reg-BI Exams

Here's what the SEC is looking for in its first Reg-BI exams

Even though markets are focused on the impacts of COVID-19, the SEC is not looking to a delay of Reg-BI, as I wrote previously. With less than 3 months remaining until RIAs and Broker-dealers are on the hook for new compliance, it is time for them to get in gear. Fear not, though. This article has insights into what the SEC is trying to determine in their initial compliance exams.

The SEC is sympathetic to COVID-19 efforts

The Commission sees that the big firms who manage the majority of retail investor assets have “made considerable progress” towards reaching compliance. Small, independent advisory firms are a different story, though. 

A firm may be behind the compliance deadline if it is not doing the following:

  • Analyzing how to adjust business practices;
  • supplement and modify policies and procedures; and
  • aligning your workflows to prepare for compliance with Reg BI and Form CRS.

Is your firm ready to show a good-faith effort?

First, Reg-BI exams will determine whether a BD or RIA has made a “good-faith effort to implement policies and procedures designed to comply with Reg-BI and be effective.” Beginning June 30th, 2020, the SEC will want documentation and proof that each recommendation an RIA or BD makes is within its “Best Interest” guidelines. In essence, you can read more about what a “Best Interest” recommendation is on our blog.

The Commission will look for the same in their assessment of Form CRS filings. They will “review the filing and posting of the firm’s relationship summary as well as its process for delivering the relationship summary to existing and new retail investors.” The Office of Compliance Inspections and Examinations (OCIE) will most likely review filings that occur during the first year after the compliance date. Still, they will be looking for evidence of compliance beginning at the June 30th deadline.  

As their April Announcement outlined, the OCIE will be evaluating each RIA and Broker-Dealer to the standards unique to their firm. Not every document listed in the announcement will apply to every firm.  

Don’t forget these critical compliance steps:

  • Deliver Form CRS to retail customers in a “brief customer or client relationship summary that provides information about the firm.”
  • File Initial CRS Forms and amendments with the Commission using the Central Registration Depository (“Web CRD”) or Investment Advisor Registration Depository (“IARD”)
  • Post the most current CRS Form on the firm’s public website, if the firm has one.

What is the CRS Form?

If this is the first time you’ve read about a Customer Relationship Summary (CRS Form), then don’t worry. We reviewed the SEC’s 500-page description and prepared a quick checklist in addition to our comprehensive Reg-BI compliance guide.

Click here to get our CRS Form Checklist.

Click here to get our comprehensive Reg-BI mini-ebook.

Rixtrema’s Reg-BI Optimizer

Since the January launch, many advisors are finding that RiXtrema’s Reg-BI optimizer meets the SEC’s Reg-BI expectations and helps optimize processes to ensure proper documentation. This finding is consistent with top ERISA attorneys who are experts in pension regulatory law. Groome Law reviewed RiXtrema’s product before it launched and found that it met all the SEC’s expectations.

The compliance software comes with an administrator panel for Compliance Officers. The admin panel alerts officers if a BD or RIA misses a step or forgets to fill in any part of the Reg-BI Best-Interest requirements. 

You can read more about Reg-BI Optimizer on our blog. Visit our website: https://rixtrema.com/ to learn more about any of RiXtrema’s financial planning, risk, or compliance software products. You can also contact the Client Success Team at clientsuccess@rixtrema.com. They can guide you through a quick demonstration of how Reg-BI Optimizer can prepare a firm to become compliant and ready to show the SEC proof when they come knocking later this year.

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