Reg BI Compliance Race Is On

Dual registrants are "worried about confusing the client with the two different documents rather than alleviating it," Levine said. "There's going to have to be some good training to go along with [Form CRS] through the field so they know exactly what their talking points are, to make it very clear to the client what the differences really are" between and advisor and a broker.

Fiduciary Principles 'No Small Thing'

Besides a heightened fiduciary exam focus from the SEC this year, "Reg BI does very, very significantly introduce fiduciary principles into the existing suitability standard for broker-dealers, and that's no small thing," said Fi360's Aikin. "So it does raise the bar, albeit not to a true fiduciary level."

Indeed, attorneys at Groom Law Group in Washington argued in a recent brief that the SEC's FAQ guidance on Reg BI released in mid-January indicate that the rule "may raise the standard of care and compliance obligations for financial institutions more than some consumer groups had expected."

In some ways, the attorneys write, the FAQs further clarify "the overlap" between Reg BI and the 2016 Labor rule.

For example, "the scope of the definition of 'recommendation' in each is meant to exclude actions that might stifle investment education or retirement savings," the attorneys write.

However, the FAQs also point out areas "where disharmony could be perceived and accommodations may be necessary" from the Labor Department in its soon to be released fiduciary rule reboot, "such as in the area of representative compensation structures."

The Groom attorneys are hopeful that the period of trying to read tea leaves about release of Labor's upcoming fiduciary rule to align with Reg BI "will soon end."

Labor, the attorneys state, "was tasked with reviewing its 2016 rule almost three years ago" through a Feb. 3, 2017 presidential memorandum "and we are optimistic that the DOL's response will be released soon."

A Labor rule had not been released by early February.

Levine, for his part, sees more investor confusion, however, once Labor's rule to "align" with Reg BI comes out. "The whole intent of the regulatory bodies now is to decrease confusion and increase investor education. The more varying types of standards of care you put into place is only going to cause more confusion."

Another SEC Focus in 2020

An ongoing SEC sweep of 403(b) sales to teachers is the "next area of focus" for the agency's Retail Strategy Task Force, housed within the agency's enforcement division, according to James Lundy, partner in Faegre Drinker Biddle & Reath's Chicago office, on the firm's recent Inside the Beltway webcast.

The 403(b) plan sales sweep is the "next phase" of the SEC's focus on Main Street issues, after the agency resolving "some matters" under the Share Class Selection Disclosure Initiative (SCSD), Lundy said.

SEC Chairman Jay Clayton said last year that the agency-wide Teachers Initiative was to be led, in part, by the enforcement division's Retail Strategy Task Force, which has an "increased incentive in trying to bring cases in particular areas that are priorities for the commission," according to Lundy.

Co-enforcement chief Stephanie Avakian detailed in November the agency's probing of the administration of teacher retirement plans, another area "where there may be undisclosed conflicts of interest," particularly regarding fees and lower-fee alternatives.

The focus: compensation and sales practices of third-party administrators of 403(b) plans as well as the practices of their affiliated advisors and BDs, Avakian said. And digging into "how administrators and their affiliates choose and recommend investment options, how they are compensated."

RIAs have been getting sweep letters from the SEC, and more will come, Lundy predicts. "More specifically, SEC enforcement will use the information that they obtain from the administrators in a similar way to how they leveraged information and data from clearing firms for the SCSD Initiative and certain follow-up efforts, including the revenue sharing sweep," he said.