Beyond the Rulebook: Practical Insights on Reg BI and Fiduciary Duty

Exploring the Shifting Landscape of Reg BI and Fiduciary Duty

The standards of care for financial services professionals are undergoing a significant transformation. While the core principles of Reg BI and investment advisor fiduciary duty remain consistent, regulatory expectations around their application continue to evolve through examinations, enforcement actions, and formal guidance.

In Part 1 of this Oyster Stew podcast conversation, Ed Wegener sits down with compliance experts Brent Nicks and Len Derus to explore the foundational similarities and differences between Regulation Best Interest and fiduciary duty. Together, they unpack how regulators are sharpening their focus on documentation, conflicts of interest, and the firm-level processes that shape recommendations.

Whether you’re an RIA, a broker-dealer, or a dual registrant, this discussion offers practical insight into how firms can strengthen compliance frameworks to meet today’s regulatory realities.

What You’ll Learn in Part 1

• The Evolving Regulatory Landscape: How SEC leadership and enforcement trends are reshaping compliance expectations.
• Fiduciary Duty vs. Reg BI: Key differences, practical overlaps, and what they mean for firms in day-to-day supervision.
• Obligations in Practice: How standards of care translate into firm-level oversight, product shelf management, and advisor responsibilities.
• Reasonably Available Alternatives: What regulators expect firms to consider—and document—when evaluating recommendations.

Listen to Part 1

Coming in Part 2

In the next installment, our experts will dig deeper into:

• Documentation best practices for complex products and account type recommendations
• Rollover requirements under PTE 2020-02
• Strategies for mitigating compensation-driven conflicts of interest
• How technology can support consistency, monitoring, and best interest obligations

Additional Resources

Do You Have a Strategic Product Portfolio or a Product Warehouse?

Proactive Strategies for Reg BI, Sales & Communications

FINRA Focus Areas: Communications, Reg BI and Complex Products

The Reg BI Support You Need

Oyster Consulting partners with broker-dealers, investment advisors, and dual registrants to assess and improve compliance programs around Reg BI, fiduciary obligations, rollover documentation, and supervisory procedures.

Our consultants bring hands-on experience from FINRA, the SEC, and leading financial institutions. Whether you’re building documentation workflows, training reps, or implementing compliance technology, Oyster offers practical solutions to help your firm meet its regulatory obligations with confidence.

The Oyster Solutions Advantage

The Oyster Solutions GRC software platform transforms Reg BI and fiduciary compliance from a paper exercise into a practical, technology-driven process. The Fund Analyzer module leverages Morningstar data to compare fees, expenses, account types, and returns, helping advisors and reps identify the lowest-cost share class that meets client needs. With built-in documentation workflows, selection wizards, and pre-trade analysis tools, Oyster Solutions makes it easier to demonstrate best interest, manage conflicts, and satisfy examiner expectations—all in one integrated system.

Transcript

Libby Hall:  Hi everyone, and welcome to the Oyster Stew Podcast. I’m Libby Hall. Today we’re starting the first of a two-part series on Reg BI and fiduciary duty—two standards that continue to shape the way firms serve their clients.

With the SEC sharpening its expectations under both Regulation Best Interest and fiduciary duty, firms face growing pressure to adapt their compliance programs.

In this first episode, Ed Wegener is joined by Oyster consultants Brent Nicks and Len Derus to break down the evolving regulatory landscape, highlight the key differences and overlaps between Reg BI and fiduciary duty, and explore what examiners are looking for today.

Let’s get started.

Ed Wegener:  Well, thank you very much and hello everyone. I’m Ed Wegener and I am the head of the Governance, Risk and Compliance practice here at Oyster Consulting. There’s been a lot of discussion lately in compliance circles about how the regulatory landscape will be transforming under this new administration, and now that the new SEC chair has been confirmed it’s likely we’re going to be seeing some pretty significant changes in the approach that the SEC is taking from the prior four years. The question really is, where are you going to see those changes?

One area where I don’t anticipate seeing a huge amount of change is with regards to the standard of care for retail clients. These stem from either the fiduciary standards under the Investment Advisers Act or Reg BI for broker-dealers, and, while the general requirements are pretty well understood, what we’re finding is that the expectation regarding the application of those requirements has been evolving, and that’s been based on what firms have been seeing through examinations that have been conducted, enforcement actions that have been issued and then also guidance that the SEC has been providing. This includes expectations around things such as reasonably available alternatives, account type recommendations, documentation and management.  

So that’s what we’re going to be discussing today, and I’m very fortunate to have with me Brent Nicks and Len Derus, and they’re going to help talk about these important topics. Brent brings a tremendous amount of experience as a CCO and as a consultant, with a primary focus on the investment advisory side, and Len brings both industry and regulatory experience on the broker-dealer side. Len worked with me at FINRA where he helped manage FINRA’s national exam program, so we’re very lucky to have both with us today. So, to start, maybe it’d be good to get a quick refresher regarding the requirements related to the standards of care both under the BD and the IA standards, including both how they’re the same and how they differ depending on whether you’re a broker dealer or an investment advisor. So I wonder if one of you can just provide us a high-level overview of what those standards are.

Brent Nicks: Sure Ed, this is Brent.  The investment advisor world – it’s a very nebulous, yet defined, standard of fiduciary duty. And what exactly does that mean? But it’s always defined, as you must always act in the client’s best interest. And what does that mean exactly? In the business of providing advice, dispensing actions for a client, it’s a duty of care and also a duty of loyalty.  And, with care, it’s providing your advice based on reasonable understanding of who your client is, what their objectives are, and then combining that with loyalty, meaning you’re going to take your understanding of the client and you’re not going to put yourself in front of them. You’re going to work as best you can to avoid conflicts of interest and make sure that, where you can’t, you’ve discussed that with those clients. For RIAs in particular it’s important to note that that duty never goes away. It is a duty of ongoing monitoring and re-evaluation of your relationship with the client during the entirety of your relationship. Len, how does that work with broker-dealers?

Len Derus:  Thanks, Brent. It’s very similar with broker-dealers, actually. What’s interesting is the way Regulation BI was written. It really brings together the adviser perspective on how you take care of a customer, and brings it to the brokerage industry in a sense. And the way Reg BI was written, it’s several years old now.

There’s four primary obligations of a broker-dealer. Disclosure – so there’s some forms you have to file. There’s also information that you need to provide to the customers, or even potential customers, right? So, your obligation doesn’t start after they’re a customer. It starts even while you’re trying to determine if they’re going to be a customer, if you have a product or service that you can offer them and that they’re willing to take on.

Then there’s a Care Obligation – how well do you know your customer, versus what products, what securities are you recommending to them?

Conflicts of Interest.  Brent, you mentioned that there’s conflicts. A lot of that’s around, perhaps proprietary products, perhaps an affiliate product, perhaps just on compensation, depending on how your firm’s structured, what kind of securities you’re offering, what kind of services you’re offering.

And then, finally, the compliance side of things. So that Compliance Obligation really has to do with, have you put together a good program to make sure they’re following the other requirements? Are you disclosing? Are you taking care of your customers? Have you put together a good program to make sure they’re following the other requirements? Are you disclosing, are you taking care of your customers? And then, have you eliminated or mitigated and otherwise disclosed those conflicts that are out there? How do you know that’s happening? So, the controls around those compliance functions that are in your written supervisory procedures are also a very important aspect of the program.

Ed Wegener:  So it sounds like under both standards, when you’re talking about the obligation of care, the duty of care, you have to make a recommendation that’s in the client’s best interest. You don’t put the interests of the advisor or the IAR registered rep ahead of the clients. There’s the product perspective in terms of reasonable basis customer perspective, or the customer specific, and then also they talk about, under Reg BI, this concept of quantitative best interest, which is looking at things like how frequently are you trading? Look at targeting things such as churning or, let’s say, variable annuity exchanges, mutual funds switching – and these all seem like issues that from Reg BI’s perspective for broker dealers, as they move from suitability to this new best interest standard, I’m wondering have the concerns of the regulators changed, or is this just providing the regulator with new tools for addressing those concerns? I wonder Len, if you could speak to that a little bit on the broker-dealer side.

Len Derus:  Sure, I think the base concern of the regulators has not changed. How is the firm interacting with the client? What information are they giving them? What kind of products or securities are being sold or recommended to them, and does that all make sense? So that’s the base concern with the regulator, whether it’s under suitability or whether it was under this new rule of Regulation BI. What’s interesting, though, is the added requirements, the added obligations. I think there’s more specificity on how that full interaction works with the client, as opposed to suitability.

I talked to the client. We talked about a product. We sold them as suitable at the time. Right, that’s kind of an older view here we have. We’ve provided information. I gathered all this information. I understand I’ve, you know, reviewed my products, the securities I’m selling. I really understand them.

That was required before, but now there’s a little bit more around that where, if you read the bulletins from the SEC, they talk a little bit more about how are you documenting these things?

So, they said you’re going to disclose, you’re going to take care of the customer and give them something that’s reasonable for them. You’re going to take care of your conflicts of interest – but how are you documenting all of these things, as opposed to looking at just that point in time, which is kind of that suitability approach.

Now it’s kind of that full lifetime of the relationship with the customer, starting from that first phone call that you may get in or may make out to them when you start approaching them about your services and products. To me, the baseline is the same – they want to make sure the customer is being taken care of appropriately, being offered securities or products that make sense for them, but also kind of expand out the requirements a little bit across a whole lifetime of the relationship that you have with them. I don’t know if you have anything else to add to that.

Brent Nicks: I was going to simply say that Reg BI kind of went the long way to get to the same spot that is fiduciary duty, because everything that you said, it’s like you have to understand from a reasonable basis standpoint. You know who your client base is, what are your products.  And it’s got to start with not only the client-specific documentation of the effort, but it really needs to start at the firm level in regards to what you’re offering or what you’re doing. Is that reasonable for at least some of your retail clients? That’s the low watermark. Are you offering it through your practice or through your shop? Because it’s something that could be a reasonable, recommended service to some clients. And then you have to dig in even farther to say okay, it is reasonable for us to offer it through our business, but now why is it reasonable for this client?

So you have two levels of documentation here to really wrap your hands around, which is, what is the firm doing to establish what they’re making, establish what’s made available, what services are being provided versus why does this particular client need those services? And to really complicate that in our modern world, most of these organizations we’ve talked about are RIAs, we’re talking about BDs (broker-dealers), but almost more often than not, I’ll say, these are affiliates of one another and, in many instances, an individual representative for these affiliated entities could offer either service. So, in what capacity am I working under when I’m documenting what is the best option for the client? Because, remember, depending on the route you go, is ongoing monitoring required? Not required? Is it point in time or is it over the life of the relationship? And while these rules are bringing that together, there still are some nuances and distinctions with the account types that you’re opening up with your client. All of that needs to be documented, so you mentioned monitoring, right.

Len Derus:  So that’s more of a kind of an IA function, an investment advisor function. They monitor accounts or looking, you know, do we need to make changes? But even on the broker dealer side, where you have an ongoing relationship with a client, while it’s not monitoring, if you’re going to be recommending an older security, another product to them, you still have to know what’s in the account, what’s in their older accounts, what older assets do they have, right? So you’re not quite monitoring. You’re looking at things as the recommendations are coming up or as you’re going to be making them, so not really monitoring actively.

However, you have to understand the history of that account, of that individual, of the assets that individual has, to be able to really make a good, solid recommendation and then be able to document that. I think we’ll talk about documentation a little bit more later and some of the important aspects there. So, while it’s not monitoring, it’s very close.  Reg BI brings us into that, closer to that fiduciary standard on the broker-dealer side.

Ed Wegener:  Yeah, and I think you guys brought up two really important points. Let me just hit on one that we’re going to discuss in more detail later, and that one is documentation.  What needs to be documented? How do you document? And the other is with respect to account type, recommendations. So when you’re talking about if you’re both a broker-dealer and investment advisor, you’re going to have to decide recommendations, right? When you’re talking about if you’re both a broker-dealer and investment advisor, you’re going to have to decide, well, what type of accounts best for them? And so you’re going to have to go across those standards when you’re considering that. So really important things to consider.

And then, with respect to whether these are new standards, I think this has really been borne out in the enforcement actions that we’ve seen. The activity that’s being addressed isn’t different than the activity that you saw being addressed under the suitability model.

But they’re just doing it with these new tools for under the best interest standard.

And you know, in one area, especially this quantitative suitability, one of the challenges that FINRA had in bringing those types of cases under the suitability model was you had to demonstrate that the registered rep or that the firm had de facto control over the customer’s account, whereas now, with Reg Best Interest, they took that element away.  You can show that a series of recommendations wasn’t in the client’s best interest without having to show that you’ve demonstrated that there was de facto control. So, this is providing new tools for regulators to go after concerns that they’ve had for quite some time.

One of the specific requirements that was outlined with Reg BI, but also in the SEC staff bulletins that spoke to investment advisor requirements as well, is the requirement to, as part of making a recommendation, to assess reasonably available alternatives.  One of the things that I wanted to ask you, both from the IA perspective and the BD perspective, is what are the types of things that need to be assessed? What are the considerations that firms should be looking at when comparing alternatives?

Len Derus:  On the brokerage side, there’s quite a few things. There are products or securities that may be seen as competitors with each other or similar enough to each other that you know for a given client maybe you want to offer both. So, what comes to mind? Maybe an annuity in mutual funds – different structures, different products, definitely different types of assets. However, they both provide access to different types of subaccount or mutual funds that are out there. They both have the ability to move between investments. In the annuity, you can move between your subaccounts In the fund family. You can move between fund types, right?

To talk about what’s a reasonably available alternative that would make sense If you offer proprietary products as well as other products of other issuers –  what are those reasonably available alternatives that your firm offers? Not the whole industry.  The industry is huge. There are many issuers of ETFs, mutual funds, annuities, et cetera. So, if you have a proprietary product or proprietary line of mutual funds, certainly part of what would be reasonably available would be other funds that are out there, offered by other fund issuers.

Now, there are certain firms that have very limited offerings and we could talk about that a little bit more.  Brent, I’d like your view on some of this, too.

Brent Nicks:  So you know, the limited offerings is kind of another way to think about reasonable alternatives that are out there. But generally, it means you’re looking at what’s available, what makes sense for the client, what’s available to them, making the offer and then discussing what’s going to ultimately be in their best interest.

On the broker dealer side that’s a lot that, honestly, should go under the caption of common sense, right? You need to try to match what you’re doing for what the client’s attempting to achieve.  For those that are working in the advisory space, very often your available options are dictated by the custodians that you’re using, so those available options can be massive. So, mutual funds, ETFs, individual equities – you have to understand and have well-documented the anticipated trading activity for the strategy that you’re looking to employ. What is the client’s current income needs for what they need? All of the things that you’re looking to employ, what is the client’s current income needs for what they do? All of the things that you would normally, or that you do document to capture point-in-time suitability under the old verbiage, is what you’re constantly reassessing with what you’re doing.  So, when you’re coming up with these alternatives, you have to constantly think about cost, overall risk, the performance features, and I said it earlier, really documenting to these regulatory requirements at a client-specific level.  

But it starts at the firm level. A lot of these things, where we come up with the reasonably available alternatives, has to do with the firm’s evaluation, with what products are made available. Is it three separate, to your broker dealer, example, Len, three different variable annuities, or do we have 12? And then how do we assist in helping the reps make the proper evaluations to what best matches the clients, or are those contracts the best possible matches and do they need that added layer of expense? I don’t want to make it sound like it’s simplistic, but as a practitioner, as a CCO, I can tell you from a documentation standpoint, very often individuals would rely on what I would call the canned wholesaler speak.  And that’s what they end up giving you, is the explanation for why this makes sense. Well, it’s why this product may make sense, but it has no bearing on whether it makes sense for this particular client.

The advice I always provided was, I understand how the product works; now, you need to explain to me why Jane Client needs that product. That’s the part that you need to fill in, and the factors that you determine are going to be the way that you answer that response, and it’s complicated but simple all at the same time. Just fill in the gap. Why did this particular client need that?

Ed Wegener:  Well, one of the things that you mentioned, Brent, that I think is really important for people to understand, is that this starts well before you’re deciding what products to put on your shelf, and making sure that those products that are on there are ones that are cost effective, ones that have performance characteristics that are appropriate for your client. And then one of the challenges I’ve seen firms have is, as they recruit new representatives in, they oftentimes bring in a lot of the products that those rest were selling, and so the product shelf, over time, can expand.

So it’s really important for firms to be thinking about, when they’re looking at their product shelf periodically, going through there and saying, hey, what products should we really have on there? Because if it’s on your product shelf and it’s comparable, you’ve really got to consider, should we be considering this when we’re comparing alternatives? You really want to make sure, over time, you’re assessing your product shelf to make sure that it doesn’t get unwieldy and that you really have a shelf of products that are really meant to meet your client’s needs over time.

Another thing that you guys mentioned that I think is really important too, is when you are making the recommendation, I’ve heard it referred to as a funnel. You start with, well, what’s the right asset class? Len, to your point, is it an annuity, is it a mutual fund, individual stocks? So, you first look at it at the asset class and then, once you’ve decided on the asset class, what products within that asset class are appropriate for that customer Then, comparing within that asset class, looking at things like cost, risk, performance et cetera.

The other thing with respect to limited product shelf – the SEC said it’s okay to have a limited product shelf, but you can’t use that as an excuse to make a recommendation. That’s not in a client’s best interest. So, it’s really important to understand all of those aspects because they’re going to be key and that’s what the regulators are going to be looking at when they come out to conduct an examination of your firm.

Libby Hall: Be sure to join us for Part 2, where Ed, Brent, and Len will dive deeper into documentation best practices, compensation conflicts, and rollover recommendations.

Thanks for listening to the Oyster Stew Podcast. If you’d like to learn more about how Oyster can help your firm strengthen its compliance program, visit us at oysterllc.com.