NASAA Reg BI Examination Summary and Financial Professional Resources
Tuesday, November 3rd, 2020 and is filed under AI Insight News
NASAA’s Reg BI Implementation Committee conducted an examination initiative to evaluate key industry changes as financial firms seek to comply with the SEC’s Regulation Best Interest requirements.
NASAA – Phase 1 National Exam Initiative 2020
NASAA recently published a report on Phase One of this initiative. The top 10 priority areas included:
- Variations in the types of products sold
- Policies, procedures, and practices related to the sale of alternative investments or complex products types
- Cost comparison due diligence and disclosure practices
NASAA’s report states, “[Prior to Reg BI], few firms had policies and procedures governing specific product sales (26%) or used tools to assist agents/representatives and investors in comparing investment opportunities (19%).
| Top 10 BD Products | Top 10 IA Products | |
| 1. | Mutual funds (66%) | Mutual funds (77%) |
| 2. | Equities (60%) | Equities (77%) |
| 3. | Debt/Fixed income (57%) | Debt/Fixed income (67%) |
| 4. | Standard ETFs (52%) | Standard ETFs (67%) |
| 5. | Municipal funds (50%) | Listed REITs (39%) |
| 6. | Variable annuities (49%) | No-load products (37%) |
| 7. | Listed REITs (44%) | Municipal funds (33%) |
| 8. | Options (44%) | Options (23%) |
| 9. | No-load products (38%) | Variable annuities (15%) |
| 10. | UITs (37%) | Leveraged- or inverse-ETFs (15%) |
Chart Source: NASAA Reg BI National Examination Initiative Phase One
Sales of complex products
“NASAA has focused much of its Reg BI examination focus on complex and high-risk products, namely, private securities, variable annuities, non-traded REITs, and leverage- or inverse-ETFs, due to investor confusion and harm emanating from these products.”
| Products | All firms combined | BD | IA |
| Private securities | 7% | 21% | 3% |
| Variable annuities | 14% | 42% | 5% |
| Non-traded REITs | 6% | 18% | 2% |
| Leveraged- or Inverse-ETFs | 9% | 15% | 7% |
Chart Source: NASAA Reg BI National Examination Initiative Phase One
What’s Next?
NASAA will conduct a second examination initiative in 2021 to continue their evaluation of key industry changes.
Resources
- Statement at the SEC’s Staff Roundtable on Regulation Best Interest and Form CRS
- Reg BI Resource Guide – Access tools and tools and training to help you comply with the SEC’s Regulation Best Interest standards and requirements.
- Video Tutorial: Comparative Reporting Tool – Create alternative investment comparison reports based on 120+ program features such as offering price, distribution rates and fees.
- E-learning courses including
- Introduction to Leveraged and Inverse ETFs
- Understanding Regulation Best Interest
- And 120+ other courses to support professional designations and Firm Element
