Understanding Regulation Best Interest (Reg BI): What It Means for You as a Retail Investor
If you’re a retail investor working with a financial advisor, you may have heard the term Regulation Best Interest, or Reg BI. But what does it actually mean, and how does it protect you?
What is Regulation Best Interest?
Reg BI is a rule adopted by the U.S. Securities and Exchange Commission (SEC) that took effect on June 30, 2020. It applies to broker-dealers and requires them to act in the best interest of retail customers when making investment recommendations. In plain language, your broker is legally obligated to put your interests ahead of their own when advising you on investments.
What Does Reg BI Require?
Under Reg BI, broker-dealers must meet four key obligations:
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Disclosure Obligation – They must disclose material facts about the relationship, including conflicts of interest, fees, and the types of services offered.
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Care Obligation – They must exercise reasonable diligence, care, and skill when recommending investments — and base those recommendations on your needs and financial situation.
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Conflict of Interest Obligation – Firms must establish policies to identify, mitigate, or eliminate conflicts of interest.
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Compliance Obligation – They must have procedures in place to ensure they’re following Reg BI across the firm.
How is Regulation Best Interest Different from the Suitability Rule?
Before Reg BI, brokers only had to recommend investments that were “suitable” — which often meant something could technically fit your profile, even if it wasn’t the best option available. Reg BI raises that bar by requiring brokers to put your interests first, not just offer a suitable product.
What If Your Financial Advisor Breaks the Reg BI Rule?
Unfortunately, not all brokers follow Reg BI. If your advisor recommended investments that benefited them more than they benefited you — especially if they failed to disclose conflicts or pushed high-commission or risky products — they may have violated the rule.
If that’s the case, you may have options for financial recovery through FINRA arbitration. This is a legal process where investors can seek compensation for losses due to broker misconduct.
Lawsuit Options: Individual FINRA Arbitration vs. Class Action
If you suffered losses with your financial advisor you may have two main legal paths:
- FINRA Arbitration: Best suited for investors with significant losses, typically over $100,000.
- Class Action Lawsuit: More appropriate for multiple investors with smaller claims that may not justify individual litigation.
At The White Law Group, we’ve been representing investors in claims against brokerage firms since 2010. If you believe your financial advisor violated Reg BI or put their own interests ahead of yours, we may be able to help you recover your losses.
About The White Law Group
The White Law Group is a national securities fraud and investor protection law firm with offices in Chicago, Illinois, and Seattle, Washington. The firm represents investors nationwide in claims against brokerage firms through FINRA arbitration. Visit our homepage for more information on investor recovery options.
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