The North American Securities Administrators Association ("NASAA") reported that although there have been some improvements since implementation of Regulation Best Interest ("Reg BI"), "most of the Reg BI firms examined in this initiative have remained fairly stagnant and continue to operate precisely the same under Reg BI as they had under the suitability rule."
In a 2021 Reg BI Phase Two Report, NASAA found that since the implementation of Reg BI:
- the number of broker-dealers offering complex products increased;
- almost two-thirds of broker-dealers failed to discuss lower-cost options during customer recommendations for leveraged or inverse exchange-traded funds; and
- very few broker-dealers enhanced investor profile forms to better match customers with products.
NASAA reported that compensation conflicts were concentrated among firms that recommended complex products. Further, only 35 percent of broker-dealers recommending complex products capped agent sales credits for those products.
NASAA concluded that "the industry is taking steps in the right direction, just very small ones at this early juncture."
Primary Sources
- NASAA Press Release: NASAA Report Finds that Many Broker-Dealer Firms Still Place Their Financial Interests Ahead of Their Customers Despite Implementation of Regulation Best Interest
- NASAA Report and Findings of NASAA's Regulation Best Interest Implementation Committee National Examination Initiative Phase II (A)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
