If you’re a broker-dealer that is just beginning your Reg BI implementation process, you should quickly review your compensation plan to understand what changes (if any) need to be made to your payout structure to be Reg BI-compliant. Make sure your payroll team is thinking about how a mid-year amendment is going to work if your review shows you need a more product-neutral approach, updates to bonus thresholds, or new reporting tools.
When reviewing your plan, make sure you consider the guidance that the SEC and FINRA have provided to:
- Avoid compensation thresholds that disproportionately increase compensation through incremental increases in sales;
- Minimize compensation of incentives for Registered Reps who favor one type of account over another or who favor one type of product over another, by establishing differential compensation based on neutral factors and eliminating compensations incentives with comparable product lines;
- Review activity where people may be looking at moving from a threshold of a certain payout to another payout and favoring certain types of accounts or products over other accounts;
- Implement procedures to monitor recommendations that are made near these compensation thresholds;
- Ensure supervisors are aware when people are on the cusp of these levels to make sure that the activity engaged in is in fact in the best interest of the client;
- Ensure supervisors, branch managers and compliance people are aware and actively reviewing activity where compensation levels are ratcheting up, so that the Registered Rep has the best interests of the clients, and not his or her best interest, in mind; and
- Help firms decide to limit or restrict the sales of high-risk products or products that may not have tremendous transparency to certain classes, including retired investors.
There are a lot of incentives and compensation packages for Registered Reps, and we can help firms sift through the risks of your specific approach. And don’t forget, it’s very important to document the rationale behind your plan, including consideration of conflicts of interests.
Oyster has assisted a number of broker-dealers and registered investment advisors with understanding their obligations under Reg BI and Form CRS. If you if haven’t started or are having challenges figuring out the best approach to achieving compliance at your firm, Oyster has the resources available to help you succeed. Oyster provides free resources such as podcasts and blogs, as well a team of consultants and software to help you organize and automate your compliance program. Oyster Consulting has the knowledge and experience to support your efforts to achieve compliance. To receive assistance with the implementation of your Reg BI compliance program, or assistance in understand the impact of these rules, please give us a call at (804) 965-5400 and our Relationship Managers will be happy to connect you with an Oyster expert.