This presentation will discuss the adoption of Regulation Best Interest (Reg BI) and its effect on broker-dealers, investment advisors, and asset managers. Our panel of experts will explain the implications and will provide practical steps that industry participants can take to ensure compliance with Reg BI.

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Understanding
Regulation Best Interest
August 13, 2019

2. Presenters
Chad Fleck
Vice President Compliance
Fidelity Investments
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Jay Herold
Vice President and Senior Counsel
MFS
Moderator
Jeff Cook
Director of Regulatory Compliance
DST Systems
Thomas Grygiel
Principal Consultant
ACA Compliance Group

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Release No. 34-86031 Regulation Best Interest:
The Broker-Dealer Standard of Conduct
• Application
– “Retail” customers
– Recommendations – securities transaction, investment strategy, account/roll
• Disclosure Obligation
– Capacity
– Fees & Costs
– Type & scope of services
– Limitations on recommendations
• Care Obligation
– Reasonable-basis (what I call “Know your security”)
– Best interest of the particular customer based on the customer’s profile
– Series of recommendations
• Conflict of Interest Obligation
– Identify & eliminate
– Identify, mitigate & disclose
• Compliance Obligation
– Policies & procedures
– Supervisory program
• Records
– All information collected and provided to a retail customer
– Identity of representative responsible for the account
– 6 years
Similar to/based on the core elements of
FINRA’s Suitability Rule

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Release No. IA-5248 Commission Interpretation Regarding Standard
of Conduct for Investment Advisers
• Duty of Care
– Best Interest
• Reasonable inquiry into client’s objectives (Similar to “Know your customer”)
• Assess and align to customer’s profile (Similar to “Customer-specific suitability”)
• Reasonable investigation into securities (Similar to “Reasonable-basis” suitability)
– Best Execution
• Maximize value for the client
• Periodically evaluate
– Monitoring Over the Course of the Relationship
• Duty of Loyalty
– Eliminate or mitigate & disclose
– Quality/specificity of disclosures
Also similar to the core elements of
FINRA’s Suitability Rule

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Release No. IA-5249 Commission Interpretation Regarding the Solely
Incidental Prong of the Broker-Dealer Exclusion from the Definition of
Investment Adviser
• Advice is Outside of the Broker-Dealer Exemption If:
– A broker-dealer’s primary business is giving advice as to the value and
characteristics of securities or the advisability of transacting in securities; or
– The advisory services are not offered in connection with or are not reasonably
related to the broker-dealer’s business of effecting securities transactions
• Facts & Circumstances Assessments
• Examples:
– Discretion
– Account monitoring

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Release 34-86032 Form CRS Customer Relationship Summary &
Release IA-5247 Amendments to Form ADV
• Prepare
– 2/4 page limit
– Plain English, fair disclosure
– Follow SEC’s instructions
• Required content for each category
• Conversation starters
– Machine readable
• File
– Web CRD/IARD
• Deliver
– Post online
– Existing customers
– New customers
– Electronically / Paper (first in any set of materials)
• Maintain & Amend
Assess business
• Print vendors
• Advisor policies & procedures, training,
delivery processes, and supervision

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Reg BI vs. DOL Fiduciary Rule
SEC Regulation Best Interest
• Account type agnostic
• Imposes a Best Interest Standard
• SEC will enforce the Rule (FINRA most
likely also)
• Enforcement will include restitution
and penalties
• Suitability standard is component of
Best Interest
• Conflicts need to be disclosed,
mitigated or eliminated
• Best Interest Standard not defined
DOL Fiduciary Rule
• Focused on IRAs and ERISA Plans
• Imposes Best Interest Standard via
Impartial Conduct Standards
• Regulatory and class action lawsuits
• Allows for a waiver of punitive damages
• Impartial Conduct Standards include:
Best Interest, Reasonable Compensation
and no misleading statements
• Conflicts may be permitted with Best
Interest Contract or Prohibited
Transaction Exemption
• Impartial Conduct Standards

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Areas to Consider
• Define Best Interest
• Identify Conflicts of Interest
– Disclose
– Mitigate
– Eliminate
• How to Document Best Interest
– Updates to SEA Rules 17a-3 and 17a-4
• Compensation
• Training
• State Best Interest/Fiduciary Rules
• Certified Financial Planner –Fiduciary Standard

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Q&A