Reg BI (like the DOL rule before it) has been a huge catalyst for broker-dealers, requiring them to make decisions further limiting and rationalizing product menus and products, Schwarz added.
Firms and dually registered advisors themselves are also determining the extent to which they will still offer brokerage services.
Firms are drilling down to avoid even the appearance of conflict, Kevin Miller, executive vice president, general counsel and chief compliance officer at Securities America Inc., said at a recent Financial Services Institute conference.
“Most [dually registered] advisors say, ‘We are acting in the best interest of clients, but they aren’t segmenting themselves this way,” which will be necessary under Reg BI for each account, procedure and disclosure, Miller said.
With the movement toward financial and investment plans and away from one-off brokerage sales, firms and advisors will have to decide whether commission-based business is feasible anymore, given heightened regulatory scrutiny. “That is one of the challenges of Reg BI for dually registered advisors,” said Elizabeth Hansen, senior vice president of Waddell & Reed Inc.
“They don’t think in terms of that. They look at how they work with their clients. In their minds it is clear they’re an advisor. I think this will be a challenge for them. But with financial planning, how do you bifurcate if there are recommendations coming out of the financial plan that are implemented on the brokerage side?” Hansen asked.
Those questions and more are likely to loom large as firms prepare to fully implement Reg BI next June.