Reg BI Compliance and “Reasonably Available Alternatives”

By Ed Wegener

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FINRA and the SEC have both indicated a greater level of scrutiny and higher level of expectation of compliance with Regulation Best Interest. Of note is their focus on the Care Obligation requirement that representatives assess “reasonably available alternatives” when making a recommendation.

Regulators will expect firms to have a process for assessing their product shelf to understand the factors that need to be considered when evaluating reasonably available alternatives.

Firms will need to be able to provide representatives with the information and tools for them to be able to evaluate alternatives in the field prior to making recommendations. Factors considered will need to go beyond simply comparing costs. Firms will need to have a way to determine if their representatives are complying with these requirements, and for ensuring the evaluations are done consistently and are not biased or conflicted.

Regulators have raised concerns about firms merely relying on representative attestations that they have done the analysis. They will likely probe these types of attestations and ask firms to be able to answer questions such as:

  • What alternative products were considered and why were those products considered to be comparable?
  • What factors were considered in doing the evaluation (cost, risk, performance, volatility)?
  • What information was relied on when doing the evaluation of alternatives?
  • Does the firm have a way of assessing whether these evaluations are being conducted consistently across their sales force?
  • Does the firm have a means to determine where there might be indications that representatives were not choosing to recommend the products that were in its customers’ best interest from the list of available alternatives?

The ability of firms to answer those questions are as challenging as they are important. Firms must evaluate and assess their product evaluation governance, training, data and information systems, supervision, and record keeping. Firms will need to develop systems for providing representatives with the information that they need in order to conduct the meaningful evaluations that regulators will be expecting, and to have a means of keeping records of this process to demonstrate consistent compliance with the rule.

Technology innovations can help. Firms and vendors have been busy developing solutions that identify comparable products on firms’ shelves and bring together product information, then comparing that information across several different factors. This is information that otherwise would be extremely difficult to do manually and to ensure consistency across the representatives within a firm.

It is clear regulators are raising the bar in terms of their expectations for firm compliance with Reg BI, including meeting the challenging requirements of comparing reasonably available alternatives. It will be important for firms to assess their process around new product evaluation, information sharing and product recommendations in order to be prepared for their next examination.

Oyster Consulting can help your firm assess product governance and information sharing processes, test your supervision, review your technology platforms and provide training to ensure you are achieving compliance. For more information about how Oyster can assist your firm with Reg BI compliance, click here.

About The Author
Photo of Ed Wegener

Ed Wegener

Ed Wegener is an innovative compliance, risk management and supervisory controls expert with deep understanding of Federal Securities Laws and the rules of self-regulatory organizations, as well as technology optimization and risk mitigation. Prior to joining Oyster, Ed held several posts in FINRA, most recently as  Senior VP and Midwest Regional Director.