Our firm was built on one simple question: “How can we help you?” The very foundation of Brennan Financial Services is the idea that our firm exists to help others – other individuals, other families, other businesses. On June 30th, the SEC released a new regulation that basically mirrors that cornerstone. The purpose of the rule is to ensure that financial advisors are working in the best interest of the client, and not in their own best interest. Growing up in a firm rooted in helping others, I struggle with the idea that we needed a regulation to put your interest above our best interest, but I support any regulation that requires my industry to improve our practices so that we are providing what clients need to know to make intelligent, confident decisions about their money.
As fiduciaries for our clients and the money they invest with us, we are pleased that the new rule encourages clarity for investors. According to the SEC website, its new regulation (Reg BI) is a “package of rulemakings and interpretations designed to enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers, bringing the legal requirements and mandated disclosures in line with reasonable investor expectations, while preserving access (in terms of choice and cost) to a variety of investment services and products.”
The words ‘quality,’ ‘transparency,’ ‘reasonable investor expectations’, and ‘variety’ resonate to me both as an investor and as an investment advisor. We are accustomed to managing money for our clients over many years and decades, and that money has goals – a source of income in a well-built retirement, the wellspring of a college education, a legacy for the hopes and dreams of future generations, a philanthropic resource for a nonprofit that will change lives. The act of choosing to forego current spending to put money aside for a bigger future purpose is significant. Every firm that manages money for individuals, families, and institutions as we do should always be asking itself how it can do so with more quality, increased transparency, at least meeting reasonable investor expectations, and providing substantial variety so that the client’s goals can be achieved.
At the time that the rule was implemented, our broker-dealer, FSC Securities was required to send Form CRS to our clients to provide details on the role that FSC plays in their investments. Going forward, we will have additional disclosures to provide to our clients each time we make a recommendation. Reg BI should improve the way that all investment advisors provide recommendations to their clients, the possible pros and cons of the recommendation, the expenses the investor will incur, other options available, and how the advisor gets paid. We have had these extensive conversations with our clients for years, and we are eager for “all boats to rise” in industry best practices under this new regulation. In the end, if implemented correctly, the investor will win.
Instead of looking “across the table” at our clients, we have always envisioned ourselves sitting on the same side as our clients, looking out to the goals they want to attain and the strategies we can put in place to help them pursue those goals. This is evident in all of our business practices, from the way that we hire and compensate our team members to the way that we choose the clients we work with. While Reg BI will not affect the high quality of service that we provide to you, or the investment solutions we recommend, there may be a change in how we document our recommendations, resulting in some additional forms that our clients will sign to indicate that they understand our recommendations.
During this unprecedented global pandemic, Reg BI will hopefully address the need that investors have for a financial plan that they understand, and can therefore gain comfort and confidence from it. If you have friends or family members who are looking for a new financial advisor, or who are working on their financial plan for the first time, please share this with them. Whether we are a good fit for them or not, they should be aware of the changes in our industry and the responsibilities that all financial advisors have to their clients. If you have any comments or questions, please email us at firstname.lastname@example.org. We would love to hear from you.
Debra Brennan Tagg is a CERTIFIED FINANCIAL PLANNER™ Professional and the creator of the DBT360 Financial Plan, a proprietary program that helps her clients prioritize their goals, leverage their resources, and address their risks. She is the president of BFS Advisory Group and teaches the public and the financial services industry about the importance of values-based financial planning and investor education.