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Reg BI – A Win for All Involved

The SEC’s New Rule, Requiring Advisors to Act Purely on Their Clients’ Behalf, Benefits Everyone

Regulation Best Interest

SEC's New Rule Is a Win for All Parties

Like many in the wealth management industry, I've been watching, speaking and writing about the Securities Exchange Commission's Regulation Best Interest Rule (aka Reg BI) for some time now, most recently for Financial Planning, Investment News, The Wall Street Journal and Bloomberg TV. Now that the rule has been approved and will be implemented on June 30, 2020, you can put me squarely and unequivocally in the camp of those who believe it represents one of the most significant milestones for investors in the past decade, a key step along the path to restoring individual trust and confidence in financial markets - and in the industry as a whole.

A Brief Overview of the Rule

This excerpt from the SEC’s press release provides a clear picture of the rule and its intent:

Under Regulation Best Interest, broker-dealers will be required to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.  Regulation Best Interest will enhance the broker-dealer standard of conduct beyond existing suitability obligations and make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer when making recommendations.

The Benefits of Reg BI

Protecting Investor Interests and Choice

The beauty of Reg BI is that it offers a solution to an equation no one had been able to solve in the years since the Dodd-Frank Act gave the SEC authority to do so a decade ago. It simultaneously raises the bar for investor protection while at the same time preserving individual investors' ability to choose who they work with (i.e., what kind of advisor), what products and services best fit their individual and family situations, and how they pay for those products (whether that’s with commissions or fees or a combination of the two).

It does so by explicitly rejecting a one-size-fits-all approach to wealth management. This is critical to an Advisor’s ability to serve the needs of their clients to the best of their abilities, because no two clients are ever the same.

A Higher Standard of Care

But what we do now have – for the first time in our lifetimes – is a clear regulatory principle and standard of client care consistently present (if differently implemented) across all the activities that financial advisors engage in on behalf of their wealth management clients: The requirement that they put their clients' interests first.

I honestly believe this rule is a win for everyone. For individual investors and their specific needs. For advisors and their ability to serve their wealth management clients. And for the underlying optimism that necessarily underpins the act of investing one's hard-earned savings in financial markets – the belief that tomorrow can and will be better than today.

If you have any questions about this rule or about our commitment to always acting in your best interests, please reach out to your Baird Financial Advisor.