Account Type Recommendations: Meeting Reg BI and Fiduciary Standards

Understanding Account Type Recommendations Under Reg BI and the Advisors Act

Account type recommendations remain one of the most closely scrutinized areas of regulatory oversight. Both the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have highlighted this issue in recent guidance and examinations, making it a critical area of focus for compliance professionals.

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In this Oyster Stew episode our experts unpack what regulators expect and how firms can build strong processes around these recommendations.

• What Makes an Account Recommendation “Best Interest”? Learn how firms should evaluate the universe of available account types—advisory, brokerage, dual-registered, wrap programs, and more.
• Balancing Cost and Services. Cost remains a central factor but not the only one. Learn how firms should weigh total projected costs, including transaction fees, custodial charges, and product management fees.
• Special Considerations in Practice Transitions. When firms acquire a new book of business, the due diligence burden is significant. Discover the importance of a comprehensive book review, mapping account and asset types, and ensuring client investment needs remain the priority during and after the transition.
• Avoiding Double Dipping. Regulators have taken action against firms that collect both transactional commissions and ongoing advisory fees. Listen as our shares approaches to avoid these pitfalls, including look-back reviews, fee credits, and share-class conversions, ensuring firms do not overcharge clients when moving between account types.
• Documentation: Showing Your Work. Our experts stress the principle of “nothing documented, nothing done.” A balanced approach—combining structured selections with open-text fields—provides consistency while allowing advisors to capture the context of each recommendation.

Account type recommendations sit at the intersection of regulatory risk, client trust, and firm reputation. Firms that establish clear, well-documented processes not only reduce regulatory risk but also strengthen the quality of their client relationships.

Additional Resources

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

Reg BI and Fiduciary Obligations: Documentation, Conflicts, and Rollover Recommendations

SEC 2025 Exam Priorities: Compliance Strategies for Success

How Oyster Can Help

Oyster Consulting’s regulatory compliance experts bring decades of frontline compliance experience to help firms navigate Reg BI and fiduciary standards. We work alongside your team to design and implement account recommendation frameworks that withstand regulatory scrutiny, from due diligence reviews and documentation practices to advisor training and supervisory controls. Our goal is to strengthen your compliance program while supporting business growth and client trust.

How Oyster Solutions Can Help

Oyster Solutions software streamlines how firms manage account type recommendations. With built-in risk assessments, structured documentation, customizable workflows, and audit-ready reporting, Oyster Solutions helps firms demonstrate a clear, defensible process for every recommendation. By combining compliance expertise with technology, firms gain the oversight and efficiency they need to meet regulator expectations and serve clients in their best interest.

Transcript

Libby Hall: Hi everyone, and welcome to the Oyster Stew Podcast. I’m Libby Hall and today we’re focusing on one of the most closely watched areas of regulatory compliance — account type recommendations under Regulation Best Interest.

Joining me are Ed Wegener, along with consultant and former Chief Compliance Officer, Nolan Hughes. Together, they’ll discuss what regulators expect, how firms can strengthen their decision-making and documentation processes, and ways to avoid common pitfalls when moving clients between account types.

Let’s get started – Ed?

Ed Wegener: Well, thank you very much and welcome everyone. Today we are going to talk about Regulation Best Interests, but specifically we’re going to talk about account type recommendations. This is an area that’s been a focus area for regulators, both the SEC and FINRA, for a number of years. FINRA has identified account recommendations as one of their examination priorities and the SEC had put out a staff bulletin that specifically talked about their expectations under both Reg BI and the fiduciary requirements under the 40 Act for investment advisors. 

So, we wanted to talk today about what you can expect in terms of regulators’ expectations and how to address issues that come up with respect to account type recommendations for compliance programs. I’m very lucky to have with me Nolan Hughes. Nolan has spent a number of years as a Chief Compliance Officer in the industry and is currently a consultant here with CRC-Oyster. So, I’m excited to have you. Welcome, Nolan.

Nolan Hughes: Thank you, Ed. Happy to be here.

Ed Wegener: So, Nolan – Reg BI and the Adviser Act both require that recommendations be in clients’ best interest, and that includes recommendations with respect to account types. Can you talk about the decision-making process and the types of decisions that have to be made when making a recommendation around account types?

Nolan Hughes: Absolutely. I think the first thing you have to consider is the whole universe of account types and service options that you can offer. Now, are you advisory only, are you broker-dealer only, dual-registered? What service models do you have at your disposal? And then, within those service models, what types of accounts can you offer? Taxable, non-taxable, RAP program account, fee-only accounts, and so on. 

While assessing the client’s needs, you should begin formulating which service model and account type may best fit that need. Again, account characteristics should be considered in order for you to have a reasonable basis for believing that your ultimate recommendation is in the client’s best interest. And those considerations and characteristics would include, just as a couple of examples, service models and products provided in the account, which would include any ancillary services provided in conjunction with that account monitoring, projected costs and so on, always looking at available alternative account types. So, if you hone in on one, are there other account types that could also fit that need? Then you’ve got to balance between the two of them. And then, justify whether the account type offers the services that align with what the client is looking for. 

There are instances, and the SEC does have in one of their staff bulletins, that just because the client asked for it or says, “This is what I want,” it doesn’t automatically make that the right account type. You still have to prove that your recommendation is in their best interest. So, after going through all of the account characteristics and factors, consider whether or not they’re consistent with the client’s investment profile, their state of investment goals, their experience, and all of those kinds of KYC type factors. 

Let’s talk about cost for a second. It’s important. It’s not the only thing that’s important, but you must always consider cost as a factor when you’re making that recommendation. While both Reg BI and the IA fiduciary standard don’t always obligate you to recommend the least expensive type of account, both require you to have a reasonable basis to believe that the account being recommended is ultimately in the client’s best interest and not yours. And kind of extrapolating on that, when you’re considering cost, it should be a consideration placed on the total projected cost, not just one piece of it, which would include any indirect cost and making that recommendation. Some examples of that would be account fees, custodial fees, transaction fees, any internal management fees of the products that could be utilized in the account, et cetera. So, the point there is you need to examine the entire scope of the recommendation and the ripple effects of that recommendation.

Ed Wegener: So, given that, Nolan, when recommending an account type, such as a BD or an IA account, what are the relevant factors that really should be considered?

Nolan Hughes: Well, I think, for starters, you have to remember that both Reg BI and the IA standard require account recommendations to be in the client’s best interest, and you don’t place yours ahead of the clients. The standard you have to follow depends on which hat you’re wearing – whether that be your IA hat or your broker-dealer hat. For dually registered individuals or dually registered firms, both Reg BI and the IA fiduciary duty apply as you assess the account type recommendations for the client. Having said that, don’t forget that when you home in on that, and you go to make that recommendation, you have to disclose which capacity – IA or BD – you’re acting in prior to the point of recommendation. 

Along with the general factors that we just discussed, including cost, you should also consider things like, what are the client’s trading needs? Are they more buy and hold, or are they more active? Does the client need or want active management or holistic planning and ongoing advice versus a more transactional approach? And what available products or investment options are available in those different service models? How do they fit the client’s needs? And, you know, obviously those are just a few highlighted examples, but it homes in the point of making sure that you look at the granular details.

Ed Wegener: Excellent. One of the things that we’ve seen working with clients are situations where a firm acquires another practice. So, they bring on an adviser or a group of advisers, each of whom have a number of client accounts that they bring over. In a situation like that, what are important things that an acquiring firm needs to consider when assessing those recommendations?

Nolan Hughes: Yeah, I think that’s an excellent question, and I think it’s an area that bites firms all the time when they’re acquiring a book because they don’t do enough front-end due diligence. I think that’s where it all starts. You need to do a complete book review on the front end to understand not only the account types involved, but the asset types involved. Can you support them? Do you have an apple-to-apples map over or are there some imperfect map overs? Do you have an action plan for ensuring that after transition the clients remain in the account type and within the investment products and the service models that best suit their needs? 

Firms have to remember, if it’s an independent rep purchasing a book, just because you purchased the book of business doesn’t magically change the client’s investment needs. You really need to do a full look back into each one of those individual accounts and not just assume that hey, we’re going to move these into a wrap account or an advisory account. In general, you need to understand the basic KYC parts, the financials and investment objectives and risk tolerance, liquidity needs; all of those things have to be understood. And you also need to understand, how were those accounts invested before? What was the trading activity in those accounts? What products did they utilize? What was the expectation of service? Was it ongoing and active management or was it, you know, more transactional? 

After you identify all of that and you complete that review, then you can start matching accounts with the most appropriate service model that you can provide to meet their needs with the understanding that sometimes it’s not there and you have to address that. Don’t try to cram something into a bucket that it doesn’t fit into.

Ed Wegener: On a related note, regulators have brought actions against firms for double dipping or getting both transaction-based compensation and then switching to a fee-based account and getting ongoing fees, getting the benefits of both that upfront compensation and then the ongoing fees. How can firms address this issue when they’re looking to move between account types?

Nolan Hughes: That’s an interesting question. I think firms have different approaches here. Generally, for accounts moving from commission-based to fee-based, you really need to be doing a look back on the transactions and the commissions earned. For example, some firms may look back a year regardless of product type. Others may have different look-back ranges for mutual funds or for stocks. Typically, what you’ll see is a 12-month look-back or longer. If you find anything, any commissions in that look back range, now you have to address it. There’s not really a one-size fits all approach. And I think you have to look at the facts and circumstances there. But in the end, you do need to make sure that you haven’t charged twice on that asset. You could discount advisory fees, offer them advisory fee credits equal to the commission charged, as just two examples. But ultimately, you need to make sure that there’s a wash there.

 Aside from that, another thing I want to point out is mutual funds. This is another area where accounts moving from brokerage to advisory can get tricky. You need to make sure that you identify all share classes, all mutual funds share classes that are held, especially those with a 12b-1 or a back-end sales load, like an A share or a C share. And you need to identify those and develop a plan to place those through a share class conversion, or if there isn’t a share class conversion available, look for options of what you’re going to do with that asset instead of cramming it into the advisory account.

Ed Wegener: One of the questions that comes up whenever we’re talking about Reg BI has to do with documentation around the basis for recommendations. When Reg BI was originally introduced, the SEC was flexible so that you don’t have to document the basis for all recommendations, but there were some that you should. And in the recent staff bulletins, it appeared that they were saying that they would expect to see a basis for the recommendation in more cases than not. Can you talk about what your approach has been in terms of documenting the basis for recommendations? When is it appropriate to do so? And what types of things do you think about when deciding whether or not to document?

Nolan Hughes: Absolutely. And I think some of that ties back into the earlier part of the conversation when you’re considering account characteristics and all of those factors to formulate a recommendation. But there’s a saying that I heard at some point in my career, and I’ve used it throughout, nothing documented, nothing done. Without obtaining sufficient information from the client, it’s hard to form a reasonable basis to believe the account recommendation is in their best interest. And it’s certainly hard to prove that you did that if it’s not documented in some way. And we’ve already discussed all the various items you should consider when making the basis for recommendation, so I don’t want to rehash that now, but the point is, you need to show your work. 

There’s opposite ends of the spectrum that I’ve seen firms utilize, and some kind of take more of a free-form, open-text-box approach, and some are more prescriptive, radio-button selections. And I think the best path is in the middle of that. Have some preset selected items, kind of a radio button style selection, supplemented by freeform text to allow appropriate context to be added because no one scenario is the same. Giving the individual representative the freedom to provide context to what’s going on, but not so much freedom that you kind of run off in the ditch. I would consider avoiding forms that are 100% preset selections as well as those that are 100% freeform. You want a balance between the two.

Ed Wegener: Well, those are all terrific points, and I really appreciate your input, Nolan, on this. We’re going to continue to talk about regulation best interest and how firms are applying this in their compliance programs. And this kind of information is very terrific and helpful. So, thank you very much.

Nolan Hughes: Thank you for having me.