While SEC Chairman Jay Clayton called himself “cautiously satisfied” by Regulation Best Interest’s rollout thus far, he said firms who failed to disclose their disciplinary history on the Form CRS were a bothersome outlier during a discussion with Securities Industry and Financial Markets Association President and CEO Ken Bentsen at the advocacy organization’s annual conference.
The conversation came one week before the SEC is scheduled to co-host a roundtable with FINRA on their initial observations of the Reg BI and Form CRS rollout. Clayton said while having a disciplinary history did not necessarily mean a firm was likely to have issues in the future, it was one of the “single most reliable indicia” of potential future incidents, and he urged firms to include it on their forms.
“If you have a disciplinary history, the answer is yes,” he said. “You can talk to your client about it, but your client and customer should know you have it.”
Clayton’s comments follow reporting from The Wall Street Journal that found that as many as 20% of firms who reported on their Form CRS they had no previous disciplinary incidents actually did. The form is intended to provide clients with an accessible overview of the client/professional relationship. While several experts indicated to WealthManagement.com that the failed disclosures were more likely mistakes rather than intentional omissions, they stressed the need for firms to carefully consider their disclosures and look to what is on their Form ADV and other paperwork to see if they needed to include past events.
In the conversation, Clayton said his initial impression of Reg BI’s implementation was that it was "overdue," and he believed dually registered investment professionals who were now subject to Reg BI compliance were finding that while there is an enhanced disclosure concerning commissions, the overall standard of care is the same. He also stressed to Bentsen that he was seeing a “fair amount of harmonization” in the customer experience for both commission-based models and fee-for-service models.
“And we both know there are products where a commission model is much better for a customer than a fee-for-service model, especially in this low-interest rate environment. I’m very happy we’ve preserved that customer choice, and it enhances competition,” he said. “Some of your members may not like that there’s more competition, but that’s our job, to promote competition in the marketplace.”
Clayton also touched on the agency’s reaction to COVID-19 and said the SEC was cataloging what agency actions most benefit from in-person interaction (like going to court), and prioritizing those as the commission starts considering what returning to work looks like. While he said working remotely hadn’t been detrimental to workplace culture, he was worried about the difficulties of onboarding new hires virtually.
“That is a more difficult thing in a remote environment, bringing somebody in, trying to make them part of the culture and let them feel like they are part of the team,” he said.
The Reg BI/Form CRS roundtable will be held from 1 p.m. to 3 p.m. Eastern time on Monday, Oct. 26, and can be accessed on the SEC’s website.
