Regulation Best Interest (Reg BI): What It Means for Investors
Regulation Best Interest, or Reg BI, is the SEC rule that sets how brokers must treat retail investors when they make a recommendation. Since June 30, 2020, a broker who recommends an investment, a strategy, or a type of account must act in your best interest at that moment. The broker can’t put their own interests, or the firm’s, ahead of yours. If a broker fell short and you lost money, you may be able to recover through FINRA arbitration.
What Is Regulation Best Interest?
The SEC adopted Reg BI in 2019, and firms had to comply starting June 30, 2020. It applies to brokerage firms and their brokers when they make a recommendation to a retail customer. A retail customer is an individual investing for personal, family, or household purposes.
What Reg BI Covers
- Recommendations to buy, sell, or hold a particular investment
- Investment strategies, such as options trading or borrowing on margin
- The type of account you open, including a rollover from a 401(k) to an IRA
- A series of trades, even when each trade looks reasonable on its own
The Four Obligations Under Reg BI
| Obligation | What it requires |
|---|---|
| Disclosure | Tell you in writing, before or at the time of the recommendation, about the relationship, fees, and conflicts of interest. This includes a short Relationship Summary, called Form CRS. |
| Care | Use reasonable care when recommending. The investment must make sense for some investors, must fit you specifically, and a series of trades can’t be excessive. Brokers must weigh costs and reasonable alternatives. |
| Conflict of interest | The firm must identify and disclose or reduce conflicts. Sales contests and quotas tied to specific investments within a limited time are banned. |
| Compliance | The firm must have written policies designed to make sure its brokers follow Reg BI. |
How Reg BI Differs From the Old Suitability Rule
The older suitability rule asked whether a recommendation fit your profile. Reg BI goes further. It asks whether the recommendation was in your best interest, including its costs and the alternatives that were reasonably available.
For retail recommendations, Reg BI replaced suitability as the main standard. It is not the same as the fiduciary duty registered investment advisers owe, but it is a higher bar than suitability.
Signs Your Broker May Not Have Followed Reg BI
- You were sold a higher-cost product when a similar, cheaper one was available
- Your broker pushed a rollover out of a low-cost 401(k) without explaining the fees
- A conservative or retired investor was placed in illiquid alternatives like non-traded REITs, private placements, or DSTs
- Your account was traded heavily and the commissions added up
- Your broker never explained how they were paid or what conflicts of interest they had
What If Your Broker Didn’t Follow Reg BI?
The SEC and FINRA enforce Reg BI. For investors, the path to recovery is usually a FINRA arbitration claim against the brokerage firm. A broker’s failure to meet Reg BI can support claims such as unsuitable recommendations, negligence, misrepresentation, and failure to supervise.
Many investors ask whether a class action is an option instead. Our guide to class actions vs. individual FINRA arbitration explains the difference.
Speak With a Securities Attorney
If you believe your broker put their own interests ahead of yours and you lost money, The White Law Group may be able to help. We are national securities fraud attorneys with offices in Chicago and Seattle, and we represent investors in FINRA arbitration claims in all 50 states.
Call us at (888) 637-5510 or contact us online for a free consultation.
Frequently Asked Questions
How do I file a claim if my broker didn’t act in my best interest?
Most investors file a claim through FINRA arbitration. Most brokerage account agreements typically include a pre-dispute arbitration clause, so disputes go to FINRA rather than court, and arbitration can still result in a monetary award. Claims have time limits, so it’s best to act early.
Does Reg BI apply to my financial advisor?
It applies when your advisor is a broker with a FINRA member firm and recommends something to you as a retail investor. Many advisors are registered both as brokers and as investment advisers, and you can check which on FINRA BrokerCheck.
Can the brokerage firm be held responsible for a Reg BI violation?
Yes. Reg BI puts duties on the firm itself, including written policies to make sure its brokers comply and to manage conflicts of interest. If those policies failed or the firm didn’t supervise the broker, the firm may be liable for your losses.
