In June of 2020, ESI updated its Written Supervisory Procedures (WSPs) to accommodate heightened regulatory scrutiny due to comply with the requirements of Regulation Best Interest (“Reg BI”) regarding supervision of registered representatives who make an explicit hold recommendation. Specifically, the amended WSPs state:
11.5.6 Hold Recommendations
Best interest obligations apply to recommendations to hold a security or securities or to continue to use an investment strategy, even if the RR did not recommend the original purchase. RRs should disclose and document that the hold recommendation is based on relevant factors known at the time of the recommendation only, and that continued monitoring or recommendations will not occur (if that is the case). A hold recommendation applies to broker-dealer products including, but not limited to, brokerage accounts, direct mutual funds, and variable insurance products. RR’s use the Firm’s Explicit Hold Recommendation Memoranda to document hold recommendations and submit into Docupace.
It should be noted that the Explicit Hold Recommendation Memoranda requirement only applies to broker dealer business, not advisory business. Thus, Illuminations programs and directly held third-party managed advisory programs are exempt from this requirement.
The practical implication of this rule is that, if you advise a client to continue holding an investment in an existing broker dealer product (such as in a non-advisory brokerage account, direct mutual fund, or the subaccount of a variable annuity), you will need to document the discussion. Discussion of a general nature about investment concepts do not need to be documented.
PROCESS
ESI has established a document and simplified workflow process to satisfy this regulatory requirement. The Explicit Hold Recommendation Memoranda should be used to document these recommendations. There are two ways to submit the form to ESI
- The form can be completed and signed by the registered representative on paper with pen. The form must then be scanned into a work item with the request type of “explicit hold recommendation”.
- The form can be completed and signed electronically through Startingpoint in Docupace. This will automatically load the form into the appropriate workflow and no further action is required by the registered representative.
QUESTIONS
If you have any questions about this requirement, please contact the Suitability Review Team at 800-344-7437.
TC119935(0321)1