How can they leave out the most important words from Reg BI in the prospectus?

Brokers are afraid to offer the advisory account because they get paid huge commissions in brokerage accounts. They get paid those commissions up front and they have a big incentive to be deceptive to get the clients to buy. One of the main points behind Reg BI is is to force the brokers to offer retail customers the option of a non-conflicted advisory account with every suggestion.

(Reg BI rule Page 34): Recommendations of account types,  We are modifying Regulation Best Interest to expressly apply to account recommendations including, recommendations to open a particular securities account (such as brokerage or advisory)

Expressly :- Explicit, stated clearly and in detail, leaving no room for confusion or doubt.

if you are a dually licensed financial professional, you need to make a best interest evaluation taking into consideration the spectrum of accounts you offer (i.e., both brokerage and advisory accounts, subject to any eligibility requirements such as account minimums).[Rule page 10)

In advisory accounts, the wealth manager has no incentive to put the client in an "iffy/bad" product to get paid extra. Reg BI recognizes that conflict and requires an explicit comparison to advisory. I am including an attestation that I think everyone would agree is what should be happening.

I acknowledge that as the wealth manager on this transaction, I have told the client that this particular investment is available in their advisory account as well their brokerage account. I have told them about the cost differences between advisory and brokerage. I have told them the amount of any commissions I may or will make in brokerage as well as any illiquidity differences between brokerage and advisory. I have also informed them of any other important differences (full and fair disclosure) between brokerage and advisory. If this product is only available in brokerage, I have told the client about any current or future commissions I will make if he purchases this in his brokerage account.  The client has told me that based on the information that I gave him, that he made an informed decision to put this investment in his brokerage account and not his advisory account.  

The industry still has to be careful as Reg BI is a Standard of Conduct and disclosure is not enough. For instance, the industry can only recommend the cheapest share class, even if a customer agreed to pay more.

Here is what happens in an advisory account.

Hi Mr. Client. Working with us is very low risk. You move your money to our custodian which is Schwab. You pay us $80 a month. We only get paid by you. We don’t get paid any commissions. We have no incentives to sell product "A" vs. product "B" because we only get paid by you. If we put something in your portfolio, it is because we think it is good for you. The first time we debit your account is quarter end. We have to consistently earn your business. If you change your mind for any reason or for no reason, you just tell us to stop billing you and we stop that day. If we suggest an investment which is not liquid, you can tell us to stop billing on that investment any time you want and we will stop billing that day. The underlying manager will continue to bill you until you can sell it-usually at quarter end but it could be longer.

With that explanation, I want to show you a comparison that I think will show you how Wall Street is ignoring Reg BI. The two pages directly below summarize a penalty that JPM paid the SEC to reimburse their customers with the regulation written correctly. Below that that are Five prospectus' from top firms what leave out the most important words of the regulation. They leave them out in the risk factors and sales practice section. I would argue this is A material omission and violates FINRA rules 2020 and 2210.

Here is a 10/31/24 JPMorgan penalty on Regulation Best Interest. They put customers in a more expensive share class when a less expensive share class was available. They had to reimburse customers $15,000,000 with interest.

Here is page 3- Reg BI requires an explicit comparison between advisory and brokerage- it has the words right in the rule. In this PENALTY to the SEC, JPM correctly includes the words (including account recommendations)- .

Here is a prospectus from Blue Owl. They are a huge distributer of product to retail. In the risk factor section they simply leave out the words (including account reccomendations) I could have listed dozens more of these. Retail customers are not being given the protection/comparison that Reg BI requires.

The print below is a bit small but in the very first paragraph, Blue Owl just leaves out the words- (including account reccomendations).

Here is Starwood REIT. This is the SREIT that has had redemptions issues for almost two years. My guess is many of these investors paid a prohibited placement fee and purchased a fund with a material omission in the risk factors.

This is Starwood (SREIT) page 29 of the prospectus and you see they simply leave out the words (including account reccomendations)

Here is the JPM REIT. In their penalty when they reimbursed clients with interest they included the words (including account reccomendations). Here they leave them out.

Below is JPM page iii of the same prospectus, JPM leaves out the words (including account reccomendations).

Here is the Blackstone multi-asset credit fund which is available to every investor in the country with no net worth requirement. The fees are 5.3% annually.

Here is the same Blackstone fund with the words (including account reccomendations) left out.

Here is BREIT- Blackstone's flagship fund.

Here is BREIT discussing Reg BI and they simply leave out the words (including account reccomendations). BREIT is sold on hundreds of dual-registered BD's and no one had any problem onboarding a fund with the "key enhancement" of Reg BI left out. The "key enhancement" is the mandatory explicit comparison between advisory and brokerage.