Regulation Best Interest
What you need to know
Regulation Best Interest (Reg BI) is a financial advice reform package adopted by the U.S. Securities and Exchange Commission (SEC), to take effect June 30, 2020. It is aimed primarily at Brokers to reduce consumer confusion around their role and how it is different from Registered Investment Advisors. A 2010 CFA survey of 1,000+ investors found that two out of three consumers thought that Brokers have a “fiduciary duty,” to always act in their best interest. They do not. Only Registered Investment Advisors (RIAs), like Moneta, do.
UNDERSTANDING YOUR OPTIONS
Financial Advisor firms generally fall into two major categories, Registered Investment Advisors (RIA) and Brokers. Both can offer financial advice, but differ vastly in how they are regulated, what they offer, how they service your account and how they are compensated. It’s important to understand the difference and right fit for you.
REGISTERED INVESTMENT ADVISOR
RIAS PROVIDE ADVICE
Governed by the Investment Advisers Act of 1940 a Registered Investment Advisor (RIA) is a firm primarily in the business of providing financial advice for Clients long-term. Advisors at an RIA are called Investment Advisor Representatives (IARs).
Long-term Fiduciary Client Commitment
The SEC holds RIAs accountable to an ongoing “fiduciary standard,” to counsel clients in what is in their best interest–always. Moneta is an RIA, engaging with clients for comprehensive, long-term financial management and ongoing monitoring. Our Investment Advisor Representatives (IARs) act as a trusted fiduciary to provide a broad range of services like advisement on financial, tax, estate and retirement planning; business succession consulting; and concierge services.
RIA’s are primarily compensated from a fee paid by their Clients on a predetermined schedule, like once a quarter. Fees range from a flat fee, an hourly rate and/or a percentage of the total portfolio, also known as Asset-based Fees.
Moneta Clients typically pay an Asset-Based Fee, which allows us to be well-aligned with Clients’ goals.
Learn more about the various payment structures for RIAs from the SEC’s Chairman, Jay Clayton.
BrOAD Range of Investment Products
RIAs are considered to have an “open architecture” of a broad range of investment products available for their Clients. They typically do not own much, if any, of the investment solutions they may recommend to Clients, minimizing potential conflicts of interest for Clients.
MONETA IS AN RIA
In 1989 Moneta Group became a Registered Investment Advisor (RIA) firm, committing to being a fiduciary for clients and always acting in Client’s best interest.
Brokers Buy and Sell Securities
Regulated by the Securities and Exchange Act of 1934, Brokers’ original role was to buy and sell securities for Clients. Their services are generally more transactional and time-specific than those of an RIA; however, technology and trends in the financial services market since the early 1990s has created an overlapping of boundaries between when a Broker is “selling to” and “advising for” their Clients.
Short-Term "Best Interest" Requirement
Previously, Brokers were not required to “act in Client’s best interest” or disclose potential conflicts of interest. Reg BI now requires Brokers to behave more like an RIA, but not entirely. Reg BI states they are now to “act in Client’s best interest,” but only at the time of giving advice with no ongoing monitoring required.
Sales Commissions & Referral Fees
While Reg BI intends to uphold higher standards for Brokers, most are still primarily compensated based upon what financial products they “sell” to their Clients–a key motivator.
Learn more from the SEC’s Chairman, Jay Clayton.
Limited Investment Products
Regulated and incentivized as a Broker, their financial advice for Clients is typically limited by the investment options their firm offers.
WHO ARE BROKERS?
A Broker is the intermediary between an Investor and a securities exchange, because securities exchanges only accept orders from members of that exchange. Brokers provide that service for Investors and are compensated either through commissions, fees or through being paid by the exchange itself.
A Dealer acts as a principal in trading for its own account, as opposed to a Broker who acts as an agent who executes orders on behalf of its clients. A Dealer stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A Dealer seeks to profit from the spread between the bid and ask prices.
Key Questions to DIFFERENTIATE
While we have delineated above the key differences between an RIA and Broker, some firms and/or Advisors are a hybrid of both. To best understand the key factors that would most likely impact their ability to act in your best interest, following are key questions to ask:
type of firm
Are you a Broker, a Dealer, a Registered Investment Advisor or registered as several? How long has your firm been operating in this capacity?
What certifications and designations do you hold and what do they mean? The CFP®, CPA or CFA® can be good indicators of a qualified advisor.
ask for an example
If given $50,000 to invest, how much will go to fees/costs and how much will be invested? Who pays you and how much? Are you compensated in other ways?
Client Relationship Summary
In June of 2019, the U.S. Securities and Exchange Commission (SEC) adopted a package of rule makings and interpretations relative to Broker-Dealers and Registered Investment Advisers. Regulation Best Interest (Reg BI) was part of the package, aimed specifically at Brokers and designed to reduce consumer confusion around a Broker’s role and how it differs from Registered Investment Advisers.
Moneta Clients will be receiving their Client Relationship Summary along with our annual ADV brochure and supplement. Most of the language in the summary was government-prescribed, so please do reach out to your Moneta Advisor if you would like to discuss what this means for your situation specifically.
MONETA ACTS IN YOUR BEST INTEREST–always
Moneta Financial Advisors are independent, fee-only Registered Investment Advisors (RIAs), regulated by the SEC and required to act as fiduciaries. Each of these has clear benefits to our Clients. Contact us to learn more about what we can do for you.
We are in the business of being your long-term financial advisor, always acting in your best interest. A Registered Investment Advisor, or RIA, has a fiduciary duty to their clients, meaning they are required to seek the best solution for their clients’ financial plans vs. just one “that will work.” It’s a standard of excellence that we uphold at Moneta as the only way to do business with all of our clients–all of the time.
As a firm, being “fee only” means we are paid by our clients for our financial advice and services and not compensated from funds or other financial service products that could sway us to want to recommend one solution over another.
Moneta is an independent firm, owned and run by its Partners, committed to Clients. We have no corporate obligation to recommend specific investments to our Clients. Nor do we have to make business decisions to please investors or stockholders. We are wholly committed to running our firm to act in Clients’ best interest–always.
Our fiduciary duty to our clients is what we believe in and what our firm was built upon. We take pride in our fundamental obligation to provide financial advice that always puts our clients’ best interests first. We consistently put our clients’ best interests ahead of our own, regardless of all other circumstances.
Last updated May 15th, 2020