While Regulation Best Interest (Reg BI) was first introduced years ago, 2025 is shaping up to be the year the SEC takes enforcement action against violations more seriously than ever. If your broker-dealer has been slow to adapt to this new standard of conduct, now is the best time to familiarize yourself with the regulation and its compliance requirements.
Let’s take a look at the most common questions regarding what Reg BI is, who it applies to, and how it differs from other obligations (like the suitability rule).
What is Reg BI?
Reg BI, also known as the Best Interest Standard, establishes a standard of conduct for broker-dealers and any associated persons when making recommendations to retail customers.
It was initially introduced by the Securities and Exchange Commission (SEC) in April 2018 and officially voted into law in June 2019. The primary purpose of Reg BI was to implement a standard specifically for broker-dealers, similar to how registered investment advisers (RIAs) are held to a fiduciary standard when working with clients. The SEC created the Reg BI framework to ensure that investors were made aware of all relevant details (including conflicts of interest) when working with a broker-dealer.
Who does Reg BI apply to?
Reg BI applies to the following:
- All broker-dealers
- Associated persons (employees or partners associated with the brokerage firm)
Notably, the broad requirements of Reg BI do not apply to investment advisers or their associated persons. Rather, RIAs are held to their fiduciary duty (which does include certain Form CRS requirements) under the Investment Advisers Act of 1940, the Department of Labor (DOL) fiduciary rule, and relevant state regulations (as applicable).
What are the components of Reg BI?
The four primary components of Reg BI relate to care, disclosure, conflicts of interest, and compliance:
- Care: A broker-dealer is required to exercise “reasonable diligence, care, and skill when making a recommendation to a retail customer.”
- Disclosure: This requirement dictates how a broker-dealer discloses information pertaining to the client-broker relationship (in writing prior to or at the time of a recommendation).
- Conflicts of interest: Broker-dealers are required to have proper policies and procedures in place to address any conflicts of interest.
- Compliance: Each broker-dealer must have written (and enforced) policies and procedures documenting the firm’s efforts to meet regulatory requirements as outlined in Reg BI.
What is the Reg BI conflict of interest obligation?
The Reg BI conflict of interest obligation is a particularly important area of focus for the SEC, especially when it comes to pursuing enforcement action. According to a SEC bulletin, “identifying and addressing conflicts should not be merely a “check-the-box” exercise, but a robust, ongoing process that is tailored to each conflict.” This obligation requires broker-dealers to establish and enforce policies and procedures that are meant to:
- Identify and disclose (or ideally eliminate) all conflicts of interest that may be related to a specific recommendation.
- Mitigate potential conflicts of interest of individual associated persons.
- Identify and disclose instances where the investment strategy or products recommended are limited to proprietary products or other similarly specific ranges of products, and describe the conflicts of interest such actions would create.
- Eliminate any type of quota, sales contest, and/or non-cash compensation based on the sale of a specific security or type of security within a limited period of time.
The SEC urges broker-dealers and financial professionals to review their relationships with retail investors to address specific conflicts of interest that may be unique to their situation.
When does Reg BI supersede FINRA’s suitability rule?
When Reg BI was initially introduced, questions arose regarding how Reg BI enhancements would relate to FINRA’s suitability rule. In 2020, FINRA filed a proposed amendment to the suitability rule to further clarify the distinction.
In general, Reg BI offers a specific standard of conduct for broker-dealers when making recommendations to retail investors, while the suitability rule applies to transactions with institutional investors (as well as other specific circumstances not relating to retail customers). Therefore, the suitability rule provides more overarching guidance for broker-dealers, while Reg BI hones in on a specific situation (i.e., providing recommendations to retail customers).
Reg BI Compliance with COMPLY
One of the best ways to ensure your broker-dealer and its associate persons remain compliant with Reg BI is to implement software capable of preventing, identifying, and documenting your compliance efforts.
COMPLY provides a variety of tailored consulting and technology services to help your firm identify and mitigate compliance risks. Specifically, COMPLY (in partnership with InvestorCOM) launched the COMPLY Fiduciary Suite in 2024, which leverages a suite of revolutionary tools for Reg BI and DOL fiduciary rule compliance: RolloverAnalyzer, Rollover Dashboard, and PeerCompare.
By utilizing COMPLY’s tools and solutions, your firm can ensure it has a thorough compliance program that complies with Reg BI standards, protecting your firm and clients’ interests alike.
Are you ready to ensure Reg BI compliance, every time? Let’s talk!