Background: What is Regulation Best Interest?
Last summer the SEC adopted Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934. The purpose of Reg BI was to establish a "best interest" standard of conduct for broker-dealers when they make a recommendation to a retail customer (which is essentially a person who receives a covered recommendation from a broker-dealer) for any securities transaction or investment strategy involving securities, including recommendations of types of accounts.
How does this apply in the context of workplace benefits?
In the context of workplace savings plans, for instance, Reg BI applies to plan participants when Fidelity Brokerage Services LLC (FBS) provides in-plan investment or plan distribution recommendations. It also applies when FBS makes covered recommendations to Health Savings Account (HSA) owners and Stock Plan Services account owners. Reg BI impacts broker-dealers like Fidelity to ensure we are acting in a customer’s best interest and put the customer’s interests first. Since FBS is a broker-dealer, it is covered and responsible for complying with this regulation and providing all required disclosures.
How will it work for participants in my plan?
When a plan participant requests a covered recommendation as defined above, the participant is required to be provided with certain disclosure related to the recommendation. The Reg BI disclosure is required to be delivered prior to or at the time of a covered recommendation, so email will be a real-time option, as well as mail for anyone who does not have an email account.
The Reg BI master disclosure kit will include a document called the Form CRS (Customer Relationship Summary) and is a separate disclosure document adopted by the SEC at the same time that Reg BI was adopted. Form CRS includes a summary of the broker-dealer’s services and aspects of the investor’s relationship with the broker. Also included are SEC required details on items such as fees, costs, conflicts of interest, and contact information. It’s all designed to protect the investor and ensure they get all the facts before they decide to move forward with the broker's recommendation.
Do plan sponsors need to receive Reg BI disclosures or take any action?
No. Only applicable plan participants are required to receive a disclosure prior to the receipt of a recommendation on any securities transaction or investment strategy involving securities. Fidelity will take care of providing the disclosure when necessary to participants who fall into these scenarios.
What is the effective date when disclosures must be provided?
The effective date for the Reg BI and Form CRS requirements is June 30, 2020.
For questions or additional information, please contact your Fidelity representative.