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Concerned about Reg BI Disclosure?

In a recent Perspectives article (Why You Do What You Do), Adam wrote, “Clients want a financial planner who is genuinely committed to putting their clients’ interests above their own, not because it is mandated, but because it’s the right thing to do. They want to have confidence that their advisor is on their side with no hidden agenda or self-serving objectives.”

Unfortunately, our profession has been known to have “bad apples,” hence the focus on regulatory changes from time to time, such as “Reg BI” which takes effect on June 30, 2020.

  • If you are affiliated with a broker-dealer, it’s likely that your clients have already received Reg BI disclosure documents.
  • If you have an RIA, you are probably hard at work creating your Form CRS to stay compliant with Reg BI.
  • For CERTIFIED FINANCIAL PLANNER™ professionals, June 30 is also the enforcement date for the CFP Board’s newest Standard of Conduct.

For advisors and planners who make a regular practice of providing disclosure and conflict-of-interest information to their clients, regulatory changes and disclosure documents are nothing to be concerned about.

Since we live in a world where regulations will always be changing, here are 5 principles for addressing disclosure and conflict-of-interest information that should govern your client interaction.

  1. Explain the risks and rewards for any course of action you recommend. Just about everything in life is a trade-off between risk and reward. Take the time to make certain your clients understand what can go wrong, as well as your expectations for what can go right.
  2. Prepare your client for the tax consequences of various courses of action. Obviously, that means you have to be diligent in your research as to what those tax consequences could be.
  3. Be straightforward about what you can and cannot do. Sometimes clients want us to assume a role that we can’t assume, such as trustee or executor. And some clients think we actually know ahead of time what the market is going to do. (Don’t we wish?)
  4. Provide and discuss your fee schedule, including internal expenses and other charges. Make certain your clients understand exactly what they are paying for and how much.
  5. Be forthcoming as it relates to potential conflicts of interest. I was amazed by the lengthy list of potential conflicts of interest in the Reg BI document I read.

Most of all, be prepared. The more open and transparent you are with clients in your day-to-day interactions, the less likely disclosures such as these will raise questions in their mind.

If they ask, be ready to answer any question with confidence. You might even start the conversation.

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