{"id":1117,"date":"2025-10-27T17:25:17","date_gmt":"2025-10-27T17:25:17","guid":{"rendered":"https:\/\/www.altlawfirm.com\/?post_type=practice-area&p=1117"},"modified":"2025-11-05T16:28:29","modified_gmt":"2025-11-05T16:28:29","slug":"regulation-best-interest-reg-bi","status":"publish","type":"practice-area","link":"https:\/\/www.altlawfirm.com\/es\/legal-services\/regulation-best-interest-reg-bi\/","title":{"rendered":"Regulation Best Interest (Reg BI)"},"content":{"rendered":"
\n
\n

Regulation Best Interest, or Reg BI, is the investor-protection rule adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934. It took effect on June 30, 2020, and requires broker-dealers and their representatives to act in the best interest of retail investors every time they make a recommendation involving a security or investment strategy.<\/span><\/p>\n

The rule strengthens the long-standing suitability standard under FINRA Rule 2111, often referred to as the suitability rule. Instead of allowing brokers to meet only a \u201creasonable basis\u201d analysis, Reg BI aligns the broker-dealer standard with investors\u2019 reasonable expectations of honest, conflict-free advice. In practice, this means a broker cannot place the firm\u2019s or the advisor\u2019s financial interests ahead of the client\u2019s.<\/span><\/p>\n

The SEC designed Reg BI to close the gap between how brokerage firms market themselves as trusted advisors and how they actually operate. It draws from <\/span>fiduciary principles<\/span><\/a> that have long applied to investment advisers under the Investment Advisers Act of 1940. Regardless of whether an investor chooses a broker-dealer or an investment adviser, the investor is entitled to recommendations made in the investor\u2019s best interest.<\/span><\/p>\n <\/div>\n <\/section>\n\n\n

\n
\n

<\/span>Who Qualifies as a Retail Customer?
\n<\/span><\/span><\/h2>\n

Reg BI protects retail customers, defined as a natural person, or the legal representative of such a person, who receives a recommendation of any securities transaction or investment strategy involving securities from a broker-dealer and uses the recommendation primarily for personal, family, or household purposes.<\/span><\/p>\n

A retail customer \u201cuses\u201d a recommendation when, as a result of it, the customer opens a brokerage account, already has an account and acts on a new recommendation, or when the broker-dealer receives or expects to receive compensation directly or indirectly from that recommendation, even if the customer does not have an account with the firm.<\/span><\/p>\n

Importantly, the rule makes no distinction based on wealth. A broker-dealer that recommends private offerings or limited-purpose investments to accredited investors is still subject to Reg BI if the client is a natural person using the recommendation for personal, family, or household purposes. The standard applies equally to all retail customers, regardless of net worth or accreditation status.<\/span><\/p>\n

The SEC has made clear that while a broker-dealer will inevitably have some financial interest in a recommendation, those interests cannot be placed ahead of the retail customer\u2019s interest.<\/span><\/p>\n <\/div>\n <\/section>\n\n\n

\n
\n

<\/span>Reg BI Obligations
\n<\/span><\/span><\/h2>\n

Reg BI applies to any recommendation of a security or investment strategy made to a retail customer. The more individualized the recommendation, the greater the likelihood that the communication will trigger Reg BI.<\/span><\/p>\n <\/div>\n <\/section>\n\n\n

\n
\n <\/span>\n
\n

A broker may still recommend a higher-risk or higher-cost product, but only after exercising reasonable diligence, care, and skill to ensure that the recommendation is in the client\u2019s best interest. This includes weighing the potential risks, rewards, and costs of the recommendation and understanding the investor\u2019s financial situation, risk tolerance, and objectives.<\/span><\/p>\n <\/div>\n <\/div>\n <\/section>\n\n\n

\n
\n

Reg BI\u2019s protections extend beyond product recommendations. The rule also governs recommendations about account types themselves. A broker who advises a customer to open a particular kind of account must first establish a reasonable understanding of the characteristics of that account type. This includes evaluating:<\/span><\/p>\n