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It’s been more than four months since Regulation Best Interest (Reg BI) went into effect. At the core of Reg BI, clients should understand the nature of their relationship with their financial professional, whether it is brokerage or advisory.
But what if I told you that to become a better financial professional under Reg BI, you should think less like one?
All too often, financial professionals meet the requirements of a regulation by simply checking a box. Think bigger. Think beyond the delivery of Form CRS, other disclosures and documentation, all of which have become routine. Rather, drop your financial professional badge altogether for a moment and approach Reg BI through the lens of transparency and better listening.
Let’s say you hire a landscape service to come to your house. You think you’re paying the landscaper for weed removal in your garden beds, and that they will keep coming back to maintain the yard. Weeks later, you notice the weeds are overgrown. You look back at the contract and realize that the agreement and payment was actually only for a one-time service.
All too often, financial professionals shy away from the fee conversation. Or clients are afraid to ask, or they make assumptions about fees. But fees in financial services should be openly discussed, like in any other professional service. Reg BI invites that conversation about explaining ongoing fees and monitoring of accounts versus a one-time fee or charge per transaction, so that the client is aware of all potential options for their investments. This is just like knowing you are paying for one-time weed removal or ongoing yard work when hiring a landscape service.
Now consider the recommendation process itself. Are you asking the right questions and listening when your clients come to you for advice?
Back to the landscape example. When you had a consultation with your landscape professional, you shared that you are planning on selling your house soon, you have a green thumb and often visit the local nursery. Maybe their typical service is a contract for maintenance, weed removal and pruning. But knowing the house-selling goal, the landscape professional might recommend sprucing up curb appeal with new planters, resurfacing a patio or removing a tree. Maybe they even suggest that you accompany them to the nursery and play an active role in selecting plants.
It’s about the relationship, not the transaction. When your clients come to you, pay attention to the details. Do they want a one-time plan or advice, or are they expecting continuous monitoring? Are their goals more immediate or short-term? Do they have investment experience, and do they want to be involved in placing trades? All of these considerations will help you build a comprehensive “best interest” recommendation and ensure that you are fulfilling your obligation as a true fiduciary.
This process is not new – it’s what good financial professionals have been doing for decades. Reg BI formalizes that process. You should feel confident demonstrating to a regulator all the information you discussed, provided and compared for your client accounts.
And unlike landscaping or any other fee-for-service profession, all financial professionals are called to a higher standard of care and diligence under Reg BI. So while it may be helpful to think outside of your world in terms of why fee transparency, conversation starters and listening are critical. When you are conducting business as a financial professional, you are wearing a badge that indicates your clients are placing their trust in you. You are making recommendations for one of the most important aspects of their lives.
That is why “best interest” shouldn’t be taken lightly or simply viewed as more paperwork and disclosures handed over to the client. Use the regulation to help your client become more informed. The more the client understands the solutions, services and costs involved, the less likely they will be to have issues, questions or concerns in the future – and that they will continue to turn to you as their trusted professional.
Jim Krause is director of supervision at Hornor, Townsend & Kent, LLC (HTK), where he manages the team that oversees the activities and sales of HTK financial professionals, and ensures that financial professionals are following firm policies and meeting regulatory requirements. Krause has more than 15 years of experience in financial services. Learn more about HTK at www.htk.com
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
