What Disclosures Are Required Under Reg BI? - Transcript

Regulation Best Interest (Reg BI) establishes important disclosure requirements for brokers and investment advisors to ensure that clients have the information needed to make informed decisions. A key component of Reg BI is the Client Relationship Summary (Form CRS), which must be provided to clients before any recommendations are made. At Malecki Law, we help investors understand these disclosures and hold firms accountable when they fail to meet their obligations.

Form CRS is a standardized document required under Reg BI. Its purpose is to provide investors with clear, concise information about the nature of their relationship with their broker or investment advisor. The form includes critical details such as:

• Fiduciary Duty: Whether the financial professional owes a fiduciary duty and/or is required to act in the client’s best interest under Regulation Best Interest. The foregoing typically depends on the type of hat the professional is wearing as it relates to your account, which should be clearly explained in the Form CRS.
• Discretionary Authority: Whether the broker has the authority to trade on the client’s behalf without prior approval.
• Conflicts of Interest: Any potential conflicts between the broker’s recommendations and the client’s interests, such as compensation arrangements or proprietary products.
• Compensation: Details about how the broker or advisor is paid, including fees, commissions, and other incentives.
• Professional Background: Relevant information about the broker or advisor’s qualifications, experience, and disciplinary history.

The purpose of Form CRS is to promote transparency and enable investors to evaluate the advice they receive. Clients have an absolute right to receive this document before any recommendations are made.

In addition to providing Form CRS, brokers and investment advisors must comply with several disclosure obligations under Reg BI, including:

• Material Facts: Disclosing all material facts about the scope and terms of their relationship with the client.
• Conflicts of Interest: Identifying and mitigating any conflicts that could affect their recommendations.
• Investment Risks: Providing clear and accurate information about the risks, costs, and potential benefits of recommended investments.
• Ongoing Communication: Ensuring clients remain informed about changes in the terms of their relationship or the nature of their investments.

These disclosures are essential for maintaining trust and accountability in the financial industry.

Failure to comply with Reg BI’s disclosure requirements can have serious consequences for both investors and the firms involved. Regulatory agencies like FINRA and the SEC have taken numerous enforcement actions in recent years against firms that failed to provide Form CRS or made incomplete or misleading disclosures.

For investors, the lack of proper disclosures can result in:

• Uninformed Decisions: Without access to critical information, investors may unknowingly accept unsuitable recommendations or investments.
• Conflicts of Interest: Hidden conflicts may lead brokers to prioritize their financial gain over the client’s best interest.

If a firm fails to meet its disclosure obligations, investors may have legal grounds to seek compensation for their losses. Malecki Law has extensive experience representing clients in claims involving inadequate disclosures and violations of Reg BI.

To ensure you’re receiving appropriate disclosures and advice, consider the following steps:

• Request Form CRS: Always ask for Form CRS before agreeing to any investment recommendations. Review it carefully and ask questions if any information is unclear.
• Understand Conflicts of Interest: Pay attention to disclosures about how your broker or advisor is compensated and whether their recommendations could be influenced by financial incentives.
• Keep Records: Maintain copies of all documents provided by your broker or advisor, including Form CRS and account statements.

If you believe your broker or advisor has failed to comply with Reg BI, consult an experienced securities lawyer to evaluate your case and explore your options for recovery.

Investors rely on brokers and advisors to act in their best interest, and proper disclosures of items such as conflicts of interest and how they receive compensation are critical parts of such trust. If you’ve been impacted by inadequate disclosures or suspect your broker has violated Reg BI, Malecki Law is here to help. Our experienced attorneys are dedicated to protecting your rights and pursuing justice.

If you have questions for an experienced securities lawyer, reach out to Malecki Law to schedule a free consultation by calling 212-943-1233. We value your privacy and will ensure all communications remain confidential. Malecki Law is based in New York and represents clients across the world.

Transcript:

Best interest requires both Brokers and investment advisors to fill out a form CRS the form CRS is to be given to all clients prior to any recommendations being made and it is designed to describe to you the nature of your relationship whether there is or isn’t a fiduciary duty whether it is or isn’t discretionary where the broker can trade with or without asking you it tells you whether there are any conflicts of interest between the Investments that they’re recommending and you it will describe compensation a lot more about their background so you have an absolute right to get a form CRS prior as a result of Regulation best interest and there have been many regulatory actions in the last two years over firms not providing those documents to investors.