Impact of “Reg BI” on Expungement for Investment Advisors Representatives

As most Investment Advisor Representatives (“IARs”) are required to uphold the fiduciary standards to their clients, Reg BI’s new standard does not impact their duty owed to their client. However, how do the new disclosure requirements in Reg BI impact disclosure requirements in Part 3 of your Form ADV?

The new requirements will almost have an immediate impact on new clients

Traditionally, IARs who are registered with the SEC and/or State do not have to disclose Part 3 of their ADV. Meanwhile, Associated Persons who are registered with FINRA are familiar with over reporting  everything on their Form U4. One of the advantages of being an IAR is not being subject to the scrutiny of a FINRA member faces.

This will all change with Reg BI. Now, an IAR must deal with increased disclosure. Any disciplinary actions, terminations, customer disputes, and the like are now all disclosable in the Form ADV to your clients. Those old disclosures are going to be more harmful than ever and of course at the time those disclosures happened, no one could have predicted Reg BI.

Investment Adviser Public Disclosure (“IAPD”) has also been updated to mirror BrokerCheck with the passage of Reg BI

BrokerCheck is known for putting a spotlight on brokers who have any type of disclosure, even if the disclosure is without merit, which is common for most customer dispute disclosures. To see the similarities, a search term of “John Doe” was entered into BrokerCheck and the IAPD:

The similarities are deafening. To make matters worse for IARs, the IAPD also highlights individuals with a disclosure with red, to warn potential clients and employers. BrokerCheck does not do that.

What to do if I am concerned about the future impact of Reg BI and what can I do about these disclosures?

1.     As a fiduciary, it is important to make sure you comply with Reg BI and disclose Part 3 of your Form ADV. Failing to comply with Reg BI, could result in disciplinary action.

2.     Make a list of your disclosures. Group them into the following buckets: Customer Dispute, Financial, Judgment/Lien, Employment Separation after Allegations, and Regulatory.

3.     Most Customer Disputes and Employment Separation after Allegations can be removed from the IAPD.

Call (720) 845-1251, if you are concerned about prior disclosures in light of Reg BI for a free consultation.