If you’re not a financial practitioner, you may have missed the news the Security and Exchange Commission’s (SEC) Regulation Best Interest (Regulation BI) rule took effect June 30. The rule doesn’t require anything of investors and is aimed at financial advisers offering investment advice and recommendations, but what is Regulation BI, how does it impact you and can it offer you a fiduciary level of care?
Phyllis Borzi, head of the U.S. Department of Labor Employee Benefits Security Administration from 2009-17, once said, “There’s no confusion in the minds of investors as to what they want. They’re very clear. They want somebody they trust who makes recommendations that put their interest first and don’t allow the adviser to profit financially at their expense.”
As an investor, you deserve nothing less than the fairest opportunity from anyone entrusted with providing advice on your personal wealth. For decades, the fiduciary standard has shaped the highest level of care for those committed to delivering it by requiring that advisors put clients’ interests above their own.
Having a fiduciary duty to clients puts financial advisers on similar footing with other professional consultants, such as physicians or attorneys. You hire a financial adviser partly because they have dedicated their career to understanding every facet of your wealth. But you also hire a financial adviser to always use their knowledge to advise you according to your highest financial interests — even ahead of their own.
However, it has probably become harder for you to know when you are receiving this level of care and, just as significantly, when you are not.
The SEC’s intent is to ensure that you, as the investor, have enough information to decide whether a professional investment recommendation is best suited to your needs no matter who is offering it.
Now that the rule is in effect, there are several questions you should consider, whether you’re content with your current adviser relationship or you’re in the market to hire an adviser for the first time. If you currently are working with an adviser and you do not know where your adviser and you stand on the below points, I encourage you to ask your adviser and gain clarity.
- Is my adviser’s sole, continuous duty to advance my highest financial interests, even
ahead of their own?
- Does my adviser deeply understand and account for the details of my total wealth interests and advise me accordingly?
- Is my adviser’s only “boss” me, the investor?
- Is my adviser’s compensation a fee-only arrangement? Meaning, does their only financial incentive come from investor clients like me?
- Does my adviser have a plan for my financial interests that is grounded in evidence, structured to manage all of my investments in unity and tailored to patiently capture expected returns according to my goals and risk tolerance?
- Does my adviser minimize any conflicts of interest by embracing all of the above best practices?
Finally, one effect of the rule is the requirement of advisers to provide investors with a Form CRS detailing recommendations, costs and legal obligations. You should take the time to review the form to understand all aspects of your relationship with the adviser. Research how the financial adviser is registered. And, if you question whether the recommendations you are offered are in your best interest, look for a second opinion from another adviser.