fb-regbi-0016
{
"person": "Retail customer of a broker-dealer",
"facts": "Representatives earn 6% on the firm's affiliated structured notes and 1% on comparable third-party notes — a rep-level incentive to favor the affiliated product. The firm's written disclosure describes the differential compensation accurately and completely. The firm's policies and procedures contain no measures beyond that disclosure that address the representative-level incentive.",
"question_context": "Whether disclosure of the representative-level incentive, without more, satisfies the conflict-of-interest obligation."
}Judged only against the quoted provisions of Regulation Best Interest, does the firm's disclosure-only treatment of this representative-level incentive satisfy the conflict-of-interest obligation? Answer with exactly one option id.
violates-conflict-mitigation— No — conflicts creating incentives for the natural person must be mitigated, not merely disclosedconsistent— Yes — accurate and complete disclosure of the differential satisfies the obligationviolates-care-reasonable-basis— No — the notes lack a reasonable basis for any customer
violates-conflict-mitigation
17 CFR 240.15l-1(a)(2)(iii)(B) requires policies and procedures to identify AND mitigate conflicts that create an incentive for the associated natural person to place the firm's or their own interest ahead of the retail customer's. A 6%-versus-1% payout differential is such an incentive, and the rule's treatment for it is mitigation; disclosure under (iii)(A) addresses firm-level conflicts but does not substitute for the mitigation (iii)(B) separately demands.
Selects violates-conflict-mitigation, distinguishing (iii)(B) mitigation from (iii)(A) disclosure.
“Identify and mitigate any conflicts of interest associated with such recommendations that create an incentive for a natural person who is an associated person of a broker or dealer to place the interest of the broker, dealer, or such natural person ahead of the interest of the retail customer”
Each quoted passage is exact-matched, after typographic normalization, against the corpus text fetched from the issuing authority (hashes in the corpus manifest). An item whose quote stops matching fails the build.
“Identify and mitigate any conflicts of interest associated with such recommendations that create an incentive for a natural person who is an associated person of a broker or dealer to place the interest of the broker, dealer, or such natural person ahead of the interest of the retail customer;” — sec-regbi
The stipulated 6%-versus-1% differential creates a representative-level incentive to favor the affiliated product, and the quoted provision expressly requires such conflicts to be identified and mitigated. Because the firm uses disclosure alone and has no mitigation measures, the keyed option is correct.
“Identify and mitigate any conflicts of interest associated with such recommendations that create an incentive for a natural person who is an associated person of a broker or dealer to place the interest of the broker, dealer, or such natural person ahead of the interest of the retail customer” — sec-regbi
The stipulated 6%-versus-1% payout is a conflict that creates an incentive for the associated natural person to place their own interest ahead of the retail customer. Paragraph (a)(2)(iii)(B) therefore requires written policies reasonably designed to identify and mitigate that conflict. The firm’s policies do nothing beyond the disclosure that (iii)(A) already requires for conflicts generally; (iii)(A) does not satisfy the separate mitigation duty in (iii)(B). Disclosure-only treatment therefore fails the conflict-of-interest obligation, so the keyed option id is right and the derivation’s application of (iii)(B) is right.
v1; no errata. Demonstrate a key error and the correction is published here, credited — challenge policy.