Reg BI is coming – Are you ready?

Evelyn Wolf
4 min read

On June 30, 2020, the SEC’s Regulation Best Interest (Reg BI) goes into effect for broker-dealers, registered investment advisers, and dual registrants. Each of these will need to fulfill a lot of new criteria. A big part of it will involve describing the following in plain language, in a maximum of four pages:

  • Services
  • Fees
  • Conflicts of interest

In light of the significance of Reg BI, we’ll be exploring various aspects of it over the next few weeks and months. And, hopefully, offering some useful hints so you can be as prepared as possible.

Why this is a welcome change

The aim of Reg BI is to enhance the transparency and quality of investors’ relationships. In a climate where we’re seeing a year-on-year decline in trust in the financial industry, this can only be a good thing. We’ve seen similar initiatives in Europe, such as the advent of Key Information Documents (KIDs) and GDPR. Both aim to improve clarity between consumers and institutions. Whether that’s around financial risks or the use of personal data.

Now more than ever, customers demand complete clarity and transparency from their financial providers. And we’re very far from that. For example, the average US reading grade level is 8th grade. Honestly, how many financial disclosures would be understandable by the average American? Reg BI is a welcome step towards a more open industry.

The ruling marks a shift in approach, but actually, the SEC has been promoting a Plain English writing style for almost 20 years. Back in 1998, they published an excellent handbook to help advisers create clear disclosure documents. You can now use this useful resource to help prepare for Reg BI.

Getting compliant – the challenges

But even with the help of the handbook, this won’t be easy. There are a number of hurdles to overcome before June 30, 2020.

1. It’s only a few months away

There’s not much time. Companies will need to comply with four distinct obligations. This is not just a question of writing relationship summaries in plain English. And even if it were, this in itself requires a lot of internal changes.

2. We’re already busy

Broker-dealers and advisers are hardly looking for extra things to do. Their workload is already full, and this adds to the strain. Not to mention the fact that they might not be familiar with plain language principles. There’s some learning to do first.

Broker-dealers and advisers will want quick advice on how to get compliant. However, the SEC ruling is complex and some advisers will need to take time to interpret it.

3. It’s a bigger job than it looks

For Reg BI to have any positive impact in the industry, it needs to be all-encompassing. Brokers must think holistically about all customer touchpoints. A four-page relationship summary written in plain English is a good start. But we must look at everything, from marketing materials to legal contracts, compliance documents, and product details. The whole buyer journey.

4. Making the cut

And then there’s the challenge of distilling the required information into a maximum of four pages. Deborah Bosley, the executive director of The Plain Language Group, believes this to be a major challenge of Reg BI. In a article, she says:

“They’re requiring a lot … that I’m not even sure plain language can deliver in two pages… When the subject is complex, you may need more words to simplify it. It’s not merely eliminating complex words, but it’s explaining the concepts and meaning.”

Bosley explains that the most difficult aspect of this is encouraging compliance and legal teams to eliminate jargon. She offers the example of the phrase “aggregating accounts” which really just means grouping them together. This is therefore a case of the plain language version being wordier than the original.

Paul Tolley from The Commonwealth Financial Network said they “will be relying on a lot of links.” To prepare Commonwealth’s Form CRS for delivery, Tolley and his team have already started taking action. They have completed multiple drafts, paring down the wordiness to find any possible additional space.

How to get ready

We’ve pulled together our tips on getting ready for Reg BI. 

Don’t wait

It’s only four months away, so now’s the time to start creating your drafts. If you haven’t started already, of course. As Bates Research says, the obligations Reg BI imposes on financial firms “are real and immediate”.

Identify and translate jargon

It’s a good idea to create a list of all the complex words and jargon you typically use. The words everyone uses internally but you’d struggle to explain to people outside the industry. Find easy-to-understand “translations” that you’re happy to use instead. Alternatives that are more accessible, and will be understood by the general public.

Examples might be:

Sole proprietorshipOwned entirely

Take the layperson’s test

Will it make sense to people not working in financial services? Not sure? Get a group of people unfamiliar with your industry to read it. If it doesn’t make sense to them, it probably won’t satisfy the SEC. Call it the “Dinner Table Test”. Do your friends and family understand your content?

Internal education and training

If you’re an expert in investments, chances are you are not also an expert in plain language principles. (If you are, kudos). Take time to familiarize yourself with the following guidelines:

The website also has a really useful checklist to use alongside the SEC’s handbook. And if you’re not completely sure what plain language actually looks like, take the time to find out. You can speak to one of our Clarity Experts.

Automate as much as you can

Solutions such as VisibleThread help you create clear, compliant communications across the entire customer journey. Non-writers, like financial brokers, get objective assistance and simple support. This will help get you ready for Reg BI on June 30. But also for managing this in your organization going forwards.

VT Writer and Insights will flag when content is hard to understand, saving you precious time and ensuring accuracy and consistency.

Short term pain for long term gain

Yes, this will be a challenge to implement. But ultimately it signals the change so desperately needed in the industry. Because Reg BI shouldn’t be just a box to check. If we get our houses in order properly, this will set us up for better, clearer communications with customers. That leads to less confusion. Increased trust and loyalty. Better retention rates. Boosted profits.

Reg BI has kickstarted the conversation around plain English. A recent article put it best when they said “This will be a heavy lift, but going forward it’s going to be much easier.”


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