For years FINRA has shared its priorities for the coming year, and 2021 was no exception. This year, FINRA’s higher expectations of Reg BI compliance are worth checking into, so you have a successful compliance program and exam. Join Oyster CEO Buddy Doyle and consultants Ed Wegener, Evan Rosser (former FINRA regulators) and Jeffrey Hiller (former SEC regulator) as they discuss how making the most of the new 2021 Exam Priorities information on Reg BI can ensure your compliance program will meet regulator expectations.


Transcript provided by Temi transcript services

Oyster:  Welcome to the Oyster Stew Podcast, where we discuss what’s happening in the industry based on what we see as we work with regulators and clients.  Oyster consultants are industry practitioners; we aren’t career consultants. We’ve done your job and we know the issues you face. You can learn more about Oyster consulting and the value we can add to your firm by going to our website – 

Buddy Doyle:  Hi everybody. I’m Buddy Doyle, Chief Executive Officer of Oyster Consulting. And I am joined today by three members of our team, Evan Rosser, Jeffrey Hiller, and ed Wagoner. Today, we’re going to be talking about the 2020 report on FINRA’s examination and risk monitoring program. And give you a little bit of overview of our reaction to the report. Evan, you did a lot of Reg BI work with us going into June. Any, any thoughts coming out of reviewing this letter?  

Evan Rosser:  Yeah, and an issue I brought up in other blogs and podcasts is my concern that a lot of firms felt they were completed with Reg BI last June 30th. And clearly that’s not the case. Clearly, they must continue to monitor for conflicts, missed revenue streams, are their disclosures accurate? And it goes the same for the Form CRS. There is a compliance obligation in Reg BI, and that is to have procedures, and those procedures need to cover updating those Reg BI disclosures; and looking for new conflicts, looking for new revenue streams and looking for things and, talking to a lot of clients during the Reg BI implementation, there were significant conflicts that firms didn’t recognize as conflicts. And that can go to even compensation. If you have a compensation structure that increases a registered reps compliance based on production, that could be a conflict. If you have forgivable loans to bring over a registered rep and a certain level of production makes that loan forgivable, that could be a conflict that needs to be disclosed. So firms need to keep an eye on the Reg BI. They have to make sure those conflicts and all the representation disclosures in there are accurate, and they need to see if there are any updates that need to be required. Maybe there needs to be new training based on what they’re hearing. I don’t know how many customers have gotten back to firms with questions about Reg BI, but if they’ve gotten any back, they should get their heads around what customers have been saying and address those as well. 

Jeffrey Hiller:  Those are all excellent points. And the only thing I would be able to add is that FINRA has suggested to use this report in a way to include the concepts in your risk reviews before you start analyzing a lot of things. But I think that compliments what Evan is saying in terms of what’s new and how to apply it, that it also goes to the specific elements of your business and recognizes that each business is different. So take these concepts, apply them in your risk report and then determine what is heightened risks and priorities for your firm. 

Ed Wegener:   

Yeah. And I think to both of your points, it’s clear based on what FINRA says in this letter and what FINRA and the SEC said at their recent round table is that they’re moving away from looking at just technical compliance with the rule and making sure that you have everything that the rule says that you need to have. And they’re really looking at the effectiveness of your implementation of the rule. So in addition to like putting together the program to Evan’s point, it’s monitoring to see how effective it is, assessing where any gaps may be, and then going back and continuing to evolve your Reg BI program. So I think it’s going to be something that their expectations are going to continue year over year to get higher and higher. They’re going to look to make sure that firms aren’t just being in technical compliance, but that the program that they have is effectively addressing things like conflicts of interest and making sure that they’re compliant with the care obligation and disclosures, et cetera. 

Well, a couple of things that they highlighted that I think firms really need to take notice of are the fact that they’re really focusing on things like account type, rollover, and asset transfer recommendations. They said that over and over again, that those are particularly areas of concern and that I’m sure that they’re going to be looking at.  Another thing that they talked about is consideration and documentation of reasonably available alternatives as part of a recommendation to a customer. So what I’ve seen in this letter, and I’ve heard in discussions is they’re going to look for something beyond just having the representatives in the field attesting to the fact that they did an assessment of reasonably available alternatives. They’re going to ask questions such as what other products did you consider specifically? Did you consider things like cost, and risk, and performance in doing that assessment? 

And then they’re going to want you to be able to demonstrate that was actually done. So I think firms should be prepared for when examinations come that they’re going to expect to see some sort of documentation that demonstrates not just something that says, yes, I did that review.  But something that really specifically identifies what that review, and that assessment look like.  

Another thing that I think is going to be a big focus is like Evan had mentioned with conflicts, making sure that there’s a process and a governance around identifying conflicts and making sure that you’re continuing to assess that.  But then looking at what efforts you’re taking to mitigate those conflicts.  And a question that’s going to come up is – what are the expectations with respect to that mitigation? What does good mitigation look like? I don’t think there’s an answer for that yet, but I think that there’s going to be an expectation that mitigation is going to be effective. And you’re going to have to demonstrate that to them.  

Evan Rosser:  You know, that reasonably available alternative provision in Reg BI is a challenge, because it’s going to be difficult in some instances. One of the sections in this year’s report, as it often is, are variable annuities. And I think Reg BI brings a new review to variable annuity sales, certainly variable annuity rollovers, or excuse me, replacements. So that is going to be a challenge in some of these products when you’re confronted with that reasonably available alternative. And it’s not simply with regulators, as I’m sure a lot of firms know every customer complaint, every arbitration, your Reg BI disclosures are going to be exhibit one.  And you had better have them correct and complete and have those ready to defend because those recommendations, any recommendation to a customer, is going to start with your Reg BI disclosures.  

Ed Wegener:  I think on a real positive note though, with respect to this is that both regulators, the SEC and FINRA, on all of these items have been very transparent in terms of the types of things that they’re looking for, but very open to feedback. And I’ve been trying to get back with guidance where they hear that there might be questions in the industry, but I would take the opportunity to use documents like this, the round table that was done and any guidance that comes out from the regulators and use that as an opportunity to take a look at your procedures and say, okay – are we meeting what we see the expectations to be? Because the expectations are going to continue to evolve. And I think get tougher, and it’s going to be incumbent on firms to continually look at guidance as it comes out and assess their systems against the guidance.  

Jeffrey Hiller:  No, I wholeheartedly agree with that, Ed.  The SEC and FINRA come out with different information every day or updated information, whether it’s cases that they pursue or trends that they’ve had noticed. And so one of the things that should be incorporated into compliance programs is the sort of daily review of what is said by FINRA and the SEC and other applicable sources.  

Buddy Doyle:  All right. Thanks everybody. Hope you have a great week. 

Oyster:  Thanks for listening. And if you like what you heard, make sure to follow the Oyster Stew Podcast on whatever platform you listen to. If you’d like to learn how we can help firms start, run, protect, and grow their business, visit our 

About The Podcast Speakers
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Buddy Doyle

As the CEO of Oyster Consulting, Buddy Doyle has led the charge to create a successful organization built on the belief that transforming experienced industry practitioners into consultants adds more value to our clients.

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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.

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Evan Rosser

Evan Rosser is an experienced and respected securities industry professional with over 25 years of experience managing complex securities investigations for NASD/FINRA and providing compliance expertise to both broker-dealers and investment advisors.  Evan has served as CCO for both investment advisors and broker-dealers, as well as providing compliance support to numerous broker-dealers and registered investment advisors.

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Jeffrey Hiller

Jeffrey Hiller is an industry professional with over 25 years of experience, specializing in Investment Advisor services.  Prior to joining Oyster, Jeffrey was Chief Compliance Officer and Managing Director of Principal Global Investors where he created and managed the firm’s global compliance program. Jeffrey began his compliance career as Senior Counsel in the Securities and Exchange Commission’s Division of Enforcement in Washington, D.C.

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