In this episode, Oyster CEO Buddy Doyle along with experts Patrick M. Dennis and Polly Cordle discuss the Reg BI Compliance Obligation and the core things firms should focus on to fulfill that obligation, including: 

  • Products
  • Advertising & Marketing
  • Training


Oyster: 0:06

Welcome to this week serving of Oyster Stew, a mix of financial services commentary and insights . Each week we’ll discuss what is happening in the industry based on what we see as we work with regulators and clients. We hope you come away with the knowledge and tools to help you make the best decisions for your firm’s future. You can learn more about oyster consulting and the value we can add to your firm by going to our website,

Buddy Doyle: 0:33

Hi, everybody. Welcome to our podcast today on the Compliance Obligation of Reg BI. This is Buddy Doyle. I’m the Chief Executive Officer and one of the founders of Oyster Consulting. I’m joined today by Patrick Dennis, our General Counsel and head of Expert Witness and Litigation for the firm, and Polly Cordle, also a leader in our organization. She runs our Oyster Solutions software product for Oyster Consulting. Thank you both for being here and sharing your time with our listeners today.

Patrick Dennis: 1:04

Thank you, buddy. Thanks. Glad to be here.

Buddy Doyle: 1:07

All right. So let’s talk a little bit about the Compliance Obligations and some of the core things that need to be covered around things that firms need to be focused on with their compliance programs.

Patrick Dennis: 1:21

Well , one of the four obligations of Reg BI is a Compliance Obligation, and what it generally states is that the firm is required to have a compliance program in place to ensure that they comply and meet all the requirements of the Compliance Obligation of Reg BI. That means, like with any other compliance program, that they have policies and procedures put together to ensure that they have figured out a way to document their compliance and meet this obligation and its requirements.

Buddy Doyle: 1:58

So Polly, with Oyster Solutions, as you’re building compliance programs and and amending them to comply with Reg BI or just building them in general, what are some of the things that you look for in a good compliance program?

Polly Cordle: 2:14

So, ideally, when we build out a policy and process in Solutions software, we like to see an overview for the chapter (we call it a chapter), and then we like to see a policy; that’s really what your firm stands by so you will comply by Regulation BI. Then we like to see processes and those processes we link to an actual workflow. Ideally you would schedule that workflow to kick off automatically, and that workflow will force your policy. So it might be a testing workflow, it might be an actual process that enforces the policy itself. That way you can’t get out of alignment with your actual policy.

Buddy Doyle: 2:55

It sounds like a classic kind of three lines of defense of operational controls. You need to look at how your team is building their controls and are there systematic controls that prevent issues? Are there supervisory controls that monitor the activity on a routine basis to make sure that your registered representatives are following your policies and procedures? (It’s still hard not to call them financial advisors after all this time.) And to have good oversight into that from a surveillance perspective, to make sure the supervisors are doing what they need to do every day; and then, the testing controls, the assurance that goes along with that are all sort of core components when I’m thinking of a compliance program. I think when we’re looking at some of the core issues that come up in Reg BI around conflicts of interest, there are some specific policies that firms ought to be focused on. Polly, would you like to talk a little bit about maybe some of the key things that you need to have really good policies around?

Polly Cordle: 4:13

Well sure. Anytime that you have a conflict that you can’t eliminate, establish a policy that will just eliminate that conflict entirely, such as sales contests. If you aren’t going to eliminate that, you’ve got a problem already. So your policy should be to eliminate sales contests. That’s an easy one. If you have a conflict you can’t completely eliminate, then you’re going to have to mitigate it. Now, what we do in the software is we give you a dashboard where you can see the conflict score, and then you can see your mitigating control score and compare those two visually, and make a decision whether you want to improve the control that mitigates that conflict and ultimately put workflows in place that can also help to control that.

Buddy Doyle: 4:56

And Patrick, are there specific things that you ought to be looking out for?

Patrick Dennis: 5:01

In terms of conflicts of interest? I think it’s things that you need to understand, or go through an inventory of all of your relationships, all of the things that your firm does, including fees and everything else, that gives you a complete inventory of all of the potential conflicts. Once you’ve figured out all of those, and it can be fairly significant. I mean, it can be a fairly elaborate matrix, if you will, of conflicts because depending on the size of your firm, the number of outside vendors you use, the number of different products you offer and all of those things. So, once you have figured that inventory out and put it together, you need to make sure that either you, as Polly mentioned, need to eliminate the conflict, mitigate the conflict, or, in certain cases, disclose it and make sure that it’s in your disclosure, and make sure it’s in your compliance. As we know, business continues to be dynamic. Your firm continues to grow, continues to build relationships, continues to take on new vendors, new products, new funds, all sorts of different things. And to stay on top of all that and make sure that when you have somebody in a different department that signs on new business, people bring on a product, or bring on something that potentially is a conflict, you’ve got to have a fairly dynamic process to make sure that you’re aware of those, that you’ve either eliminated it, mitigated it , or disclosed it as you’re required to do.

Buddy Doyle: 6:36

I think when you were talking you mentioned products three times in that answer. And as we kind of get into looking at products, one of the core things that firms are doing in response to Reg BI is taking a look at the products they have on the shelf and what the conflicts are related to those products. We’ve talked since we started the firm about new product committees and new product selection, and making sure that you’re not delivering the same kind of product, that you’re moving clients from one to the other, unless there’s sort of a material difference in those products.

Patrick Dennis: 7:20

(inaudible)…difference or a material benefit, frankly, to move them from one product to the other. The reason I mentioned product as often as I did is because, let’s face it, that’s what firms are in the business to do – to sell products , sell the appropriate products to their clients, make sure that they are giving the client the best possible options, coming up with products that meet the needs. Products are always changing. All of the wholesalers, manufacturers, if you will, are coming up with new products and trying to figure out ways to meet the needs of clients better, more efficiently, more effectively , at lower fees, all of those things. So this is one of the areas that comes in often. I, years and years ago, sat on new product committees and sat through long presentations about products and things like that. But that’s one of the things that differentiates one from the other, and I think is one of the things that registered reps try and sell is the advantages they have with certain products over other firms. So that’s an area that I think is one of the things that folks need to pay very close attention to in terms of the compliance program around the new products, the disclosure, the mitigation, however they’re going to deal with essentially a conflict. And, how are we g oing t o deal with it.

Buddy Doyle: 8:47

I think, when you’re looking at products, product selection and product due diligence, that’s certainly a key component to focus on as you’re building out your compliance program. Another component that I think you really have to focus on is how you talk about those products publicly and not publicly, quite frankly. I think that there is going to be an awful lot of work for the people in your organization that approve advertising and marketing. Given that, again, as I mentioned earlier, there’s sort of this go-to default. You’re out of compliance if you use the term financial advisor for the Series 7 registered reps, Series 6 registered rep who isn’t an investment advisory representative. And so, I think that firms need to make sure, as you’re thinking about changing every business card, every stationary, every piece of paper, that you have or your website or LinkedIn page that refers to a specific title that might be changing. That’s an awful lot of volume to take a look at. And while you’re looking at those marketing pieces, Polly , do you think you have to look at other things as well?

Polly Cordle: 10:12

I think you’re going to have to look at your people and educate them. That’s a big change for them and how they refer to themselves and how they talk to their clients. And I think they’re going to need to really be educated and trained up on this change, and how they approach not only their sales, but their clients as well.

Buddy Doyle: 10:30

Yeah. I think after all this time, we’re where change is really hard, right? Every time you make a change, it’s as hard as the last time you made a change and old habits die hard. That ought to be a saying. It seems like at this point in time , registered reps need to be very careful to document the rationale for recommendations that they’re making and probably specifically, and most concerning about things where fee structures might be changing for their retail clients. Is there any kind of advice you have, POlly, for firms looking to understand sort of the nature of fee changes the clients may be going under?

Polly Cordle: 11:21

Well, if you go back to our Care Obligation podcast , there’s a lot of discussion about how those discussions should work and, in particular, what needs to be documented. I think there’s some good guidance in that, about particularly documenting when the recommendation being made , it could appear, but not necessarily is, out of alignment with the investment objective or profile that you have on file. And, if you don’t have a piece of information in the profile, why you don’t have that piece of information or why do you think that doesn’t apply to the recommendation that you made? But I do recommend going back and listening to that entire podcast.

Buddy Doyle: 12:05

Very good. Another fee structure change that a lot of folks like us are talking about in the regulatory space is related to rollovers and a good process around rollovers. Patrick, any thoughts on ways to document the rationale of a rollover?

Patrick Dennis: 12:29

Well, sure. I think the things you have to consider in a rollover are: Why is it being done? What is the purpose of it? What is the objective? Why roll it over? As happens often when folks go from one employer to another, they have a 401K sitting someplace and they often want to roll it over into an IRA so they have control over the investments as opposed to the investments that may have been more dictated by the e mployers. But the challenge is to make sure that you document the reasons for the rollover, other than just another product to sell or another account to open. But the reasons that it’s being done, why it makes sense for the client, why it makes sense for the firm to put the person in this IRA rollover – that happens all the time. It’s a fact these days that you know, people don’t go with one employer and stay there for 40 years, get their gold watch and walk out the door. The latest things that I’ve read is, people move at least seven times in their career from one employer to another, and that’s an opportunity for a rollover at each one of those. But you have to make sure that you document and really understand the reasons for the rollover – what’s the advantages to the client, why it makes sense to do that rather than just leave it in the 401K. A lot of it is going to be in the analysis of the investments and the investment objectives, both the investments in the 401K a nd t he investment objectives o f the individual in making the decision about those rollovers.

Polly Cordle: 14:10

And I think there was a lot of energy around rollovers in the now defunct DOL rule. Some firms may have gone through some analysis back then. I know that we did a lot of work around it at Oyster, and so we’re able to leverage some of that work, and help our clients out there.

Buddy Doyle: 14:26

Certainly the firms we worked with on the DOL fiduciary rule, we are leveraging the risk assessments that were put together, the conflicts matrices that were established with them. And the ones that we didn’t work with that we’re working with on Reg BI implementations, we are going back to those documents; some went ahead and adopted some of the best practices that they were moving towards in that project. But I do think that one of the things with rollovers that you often forget as we’re going through and building your compliance programs around surveillance and testing is to monitor the overall activity and patterns of activities that a rep may have. Because a lot of times, when you’re a supervisor and you’re looking at one piece of paper, you may not get the magnitude of the actual activity that’s going on. When you see a pattern of activity occurring in a particular rep’s book that may stand out from other reps in terms of volumes of transactions, and while there can be very good rational documentation for those, when you look at them as a whole , they may be very different. So keep in mind that you may want to tweak some of the surveillance that you’re doing. As you’re looking at this, certainly you want to amend some of the testing that you’re doing in your branch exams or in your departmental testing to look for things. Patrick, you’ve got some thoughts?

Patrick Dennis: 16:09

One thing I wanted to mention about rollovers is don’t lose sight of the fact that the DOL is, there is plenty of things in the press right now about the DOL coming in with some new regulations specific to rollovers in those things. Alot of folks have suggested that’s coming or maybe coming. I’ve seen some things that suggested it may be coming as soon as before the end of the year, which is 60 days from now. Keep that in mind – that there may be some specific rollover requirements and specific things. They are the regulator for ERISA. There is a lot of discussion about the fact that they may be coming out with some new DOL regulations specific to rollovers. So keep that in mind because that may be in addition to r eg BI

Polly Cordle: 17:02

Buddy, to your point about supervision and surveillance, I think we’ve come a long, long way since the paper trade blotter . I hope a lot of firms have given that up at this point. But I think we also have a long way to go and looking at training not only our reps but our supervisors as well to see if things are getting through a supervisor. I know that when we look at the software and our monitoring platform, those are the kinds of things that we’re building out to make it a stronger compliance program. And really getting down to that trending of behavior as someone reaches a new commission break point , payout schedule hit, are they increasing their activity the closer they get to that? And those are tough things to watch in just a regular trade blotter if you’re not looking for them specifically.

Buddy Doyle: 17:48

And so technology….

Patrick Dennis: 17:50

There’s work for sure to be done here, that as that technology work is getting completed. There’s regulation around that and making sure that your systems work as designed when you’re using these risk-based platforms. The record keeping that goes along with that testing, to make sure that you can prove that you’ve actually done it, is a real component of a compliance program that needs to be considered. And we’re seeing firms take a couple of different approaches to r ecord k eeping. Some firms are simply taking their existing policies of record keeping and tweaking them a little bit, while other organizations are really starting to beef up – specifically the way that they prove the way their new product committees work, The way that they’re doing their surveillance and monitoring. Don’t be surprised if you get asked the question, “How many times does your surveillance lead to a different outcome for your clients?”

Buddy Doyle: 18:56

It’s one thing to know how many rollovers are happening. It’s another thing to do something to change the behavior of a rep. If you don’t feel great about what you’re looking at, those are going to be very interesting conversations that happen. We’ve all rolled out policies and had the blow back that occurs. It happens all the time, but in this case, these are core fundamental things that are changing. While some of it will be done by systems, and some of those system changes need to be done a lot quicker than you’re probably thinking. We know that some of the service providers out there that do client mailings, for example , they need to know your Form CRS drafts in January so they can get their code done and get that in with the statements on June 30th. We’re really getting tight on, on time, not just for the podcast , but for the regulations as well.

Patrick Dennis: 20:01

There’s long lead times, much longer lead times then most people think. And imagine that clearing firms, if you want to get something, you want to get your form CRS in the statement stuffers, you need to give them information by early January to meet the July s tatement stuffer, which seems like a long time, but I understand there’s a lot needs to be done, a lot of programming technology that needs to be included. The other thing that is maybe even more concerning in terms of a time frame is most firms certainly c hanged their comp plans, or announced the comp plans, usually in early January or at the end of the year. That’s 60 days away, and clearly your comp plan and how you’re paying your registered reps should be impacted by Reg BI and how this is all g onna work. So the deadlines are coming fast and furious, a t l east t o my way of thinking.

Buddy Doyle: 20:57

Yeah, I think they are. So there’s definitely a lot to do to build out your compliance program. There’s a lot of things you have to do before you really get down to that tactic , including certainly that conflicts matrix that you need to work on so that you make sure you adequately disclose the risk, the crafting of your Form, CRS, the amending of your marketing materials, writing policies and procedures to close gaps, or just amend that you’re doing to document the fact that you’re probably going to be doing it in a different way. It may be the same process, you might even call it the same thing, but it’s probably going to have some unique twists and turns. Certainly how your supervisors view things, the systems that they’re using to monitor the record keeping practices and then your testing programs. There is an awful lot to do to meet the Compliance Obligation of Reg BI, and be able to prove it, which is as important as meeting the obligation.

Patrick Dennis: 22:00

And if you have any thoughts about how much is really involved and how much work needs to be done , I’d refer you to SIFMA’s release on September 27th, “The Firm’s Guide to Implementation of Regulation Best Interest” and the “Form CRS Relationship Summary.” It’s only 88 pages. I think there’s a little bit to be done here. It goes through it very thoroughly in terms of the things that you need to consider, but just to give you an idea of what’s coming and how complicated this is, you might want to take a look at that.

Buddy Doyle: 22:35

Yeah, definitely. If you want to see that , is the website that holds this – it was worked on by Deloitte. They did a great job, I think, putting this together. Deloitte is obviously a competitor to us, but honestly our approaches are probably pretty similar. As we move forward, given the way that you look at compliance programs, there’s classic ways to do this and I think our firm and t heir firm a re certainly aligned on that.

Patrick Dennis: 23:07

I heard a speaker not long ago that explained that the relationship with competitors is, don’t call them competitors, call them worthy rivals. Perhaps we could consider Deloitte our worthy rival?

Buddy Doyle: 23:18

I certainly do. If you’d like to learn more about how we do things , uh, please visit us on the web at You can call us at (804) 965-5403. I hope you’ll listen to the other p odcasts. We will continue to do podcasts on a weekly basis and there’ll be, I’m sure, lot more to come on Reg BI. I wan to thank you both for your time today and sharing your wisdom with their clients and listeners. I appreciate it. Have a great week.

About The Podcast Speakers
Photo of Buddy Doyle

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.

Photo of Patrick Dennis

Patrick M. Dennis, Esq.

Patrick M. Dennis has been involved in the securities industry for over 30 years, most recently as one of the Founding Principals of Oyster Consulting, LLC, a compliance, regulatory, operations, clearing advisory, software and technology consulting firm for broker-dealers, investment advisers, mutual funds and hedge funds.

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