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October 1, 2020

Working with a Financial Professional: Your Interests Come First

Regulatory changes initiated well before any of us had even heard the phrase “social distancing” went into effect on June 30, 2020, impacting the relationship between those who seek financial guidance and those who provide such services. Passed by the Securities and Exchange Commission (SEC) more than a year ago, Regulation Best Interest or Reg BI, includes new standard of care, disclosure and communications obligations for broker-dealers and investment advisors.

There’s a lot to the recent regulatory changes, but it really boils down to one thing—transparency. Here are three important things you should understand about how the new rules affect you:

1. A Financial Professional’s Duty of Care

What you should know:
If the financial professional you are working with is an Investment Advisor Representative (that is, associated with a Registered Investment Advisor, or RIA), the individual is a fiduciary. That basically means the financial professional has to act on your behalf, serving your interests first and providing advice that puts your interests first.

Historically, financial professionals associated with broker-dealers were held to a “suitability” standard, essentially requiring a reasonable basis to believe a recommendation be suitable for you, given factors that included your investment portfolio, age, experience, risk tolerance, liquidity needs, objectives and time frames. The new rules, as the name Regulation Best Interest implies, impose a requirement that a broker-dealer must have a reasonable basis to believe a recommendation is in your best interest, considering a number of different factors.

Why it matters:
The new rules make it clear that any advice you receive from a financial professional comes with a clear understanding that your needs and interests come first. Does this mean if you worked with a broker-dealer before this new rule that the advice you received may not have been in your best interest? Not at all. It just means the standard that would apply in reviewing those recommendations was different.

2. Disclosing Conflicts of Interest

What you should know:
Reg BI requires broker-dealers to establish, maintain and enforce written policies that are designed to address conflicts of interest associated with recommendations to retail customers. This means:

  • Identifying and disclosing all conflicts of interest associated with recommendations, if those conflicts of interest cannot be eliminated. This includes anything that could create an incentive for a financial professional to recommend something. For example, a higher commission has the potential to influence a product recommendation and therefore should be disclosed.
  • Disclosing when recommendations are based on a limited product menu or restricted to proprietary product offerings.
  • Eliminating sales contests, quotas, bonuses and other policies that could potentially influence the recommendations made.

Why it matters:
It’s all about transparency. The fact that your financial professional recommends a product with a higher commission payout or from a proprietary list doesn’t necessarily mean the recommendation isn’t in your best interest. But, you should have as much information as possible for understanding and evaluating the recommendation.

3. Form CRS

What you should know:
Under Reg BI, both broker-dealers and SEC-registered RIAs had to create and make available a customer relationship summary, called Form CRS. The SEC requires Form CRS to be concise—no more than two pages—and written in easily understandable terms. Each form should explain whether the firm is a broker-dealer, an RIA or both; the types of services offered; fees, costs, potential conflicts of interest and the standard of conduct under which they operate; and whether there is any disciplinary history.

Why it matters:
When you receive Form CRS, you should take the time to read and understand it. The whole point of the Form CRS requirement is to provide the information you need to help evaluate your relationship with your financial professional and the firm. If there is anything you have questions about or do not understand, reach out to your financial professional.

Questions? Contact a CFS Financial Advisor.

Grow has contracted with CUSO Financial Services, L.P. (CFS) to provide investment services, and your CFS Financial Advisor will help you build a plan that meets your needs. The advisor will look at your current spending, saving and investing, learn about your goals and priorities, make objective recommendations and support your efforts moving forward through the implementation and management of your plan.

Schedule a Complimentary Consultation

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice, please consult a qualified tax professional.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2020.


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