The reforms introduce ‘new obligations on registrants’ and ‘codify best practices,’ including increasing the amount of information compiled for the know-your-client and know-your-product documents.Investment industry firms are reviewing their client relationship policies and procedures to ensure their financial advisors comply with new investor-protection rules that come into effect at the end of the year.
She says the amendments acknowledge the level of detail that needs to be provided will depend on the firm’s business model, the type of clients it has, the services it offers and its relationship with clients. Still, most firms will most likely need to tweak what they have in place, at least. The conflict of interest section is where many firms will need to do some work, Ms. Stein says. The reforms introduce a new requirement that says, “material conflicts must be addressed in the best interest of the client.” She says advisors will need to ensure they have the proper documentation in areas such as referral arrangements, sales practices, compensation arrangements and incentive practices.
“Firms will have to enhance their documentation of their know-your-product process in terms of what steps an advisor will have to take and know about that product ... before recommending it to a client,” she says.
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