Most in our industry are familiar with Regulation Best Interest (Reg-BI), which became effective on June 30, 2020. This rule was two decades in the making and designed to address concerns around transparency, product suitability and ensure investment opportunities proposed to clients have their best interests at heart.
Reports are surfacing the SEC is finding both Broker Dealers (BD) and Advisors are in violation of Reg-BI. One recent example focused on the sale of GWG’s L-Bonds, which the SEC alleges were sold to unsuitable investors. According to DI Wire’s article on July 7, the SEC claims procedures designed to achieve compliance with Reg-BI were not followed – violating the law in these ways:
- Not exercising reasonable diligence, care nor exhibiting the required skill-sets to understand the risks, rewards and costs associated with L-Bonds
- Advisors recommended L-Bonds to certain customers without a reasonable basis to believe the investment was in the “best interests” of these clients
- The BD is accused of failing to comply with Reg-BI’s “Compliance Obligation” because it did not adequately establish, maintain, nor enforce Written Supervisory Policies (WSPs)
The Alternative Investments sector requires that both Firms & Advisors have:
- Sufficient expertise to analyze and compare complex products, and understand the risks of each offering, investment vehicle and asset class
- Establish ”best practices” policies and procedures
- Demonstrate adherence to those procedures
Miterko & Associates Can Help With Compliance & Risk Management
How Does Miterko & Associates fit into the picture?
RIAs & Broker Dealers retain Miterko & Associates to ensure independent Alts experts work integrally with their Investment Committees (IC) and Compliance Departments to establish comprehensive firm-level risk management efforts. We help mitigate risk in multiple ways:
- Written Supervisory Procedures (WSP) – We create from scratch or update existing WSPs
- Audit existing Compliance Controls & Procedures
- Ongoing Monitoring of both Public and Private Offerings – open and closed programs
- Customized Due Diligence (“DD”) Process; Our progressive, stepped DD process saves time and money while never sacrificing quality at any stage
- Due Diligence IC Memos & Presentations
- Comprehensive Due Diligence File Building & Turn Over
Resource: What Is Reg-BI?