Key Takeaway: Regulation Best Interest (Reg BI) requires broker-dealers to act in your best interest when recommending securities — but it is not the same as a fiduciary duty. Understanding what Reg BI covers, where it falls short, and how to use violations in FINRA arbitration may help you protect your investments and recover losses.

Since June 2020, Regulation Best Interest (Reg BI) has required broker-dealers to act in your best interest when recommending securities. But what does “best interest” actually mean — and how is it different from fiduciary duty? Understanding the distinction matters, because it determines what your advisor owes you and what you may be able to recover if they fall short.

Regulation Best Interest (Reg BI): What It Means for Investors in 2026

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When the Securities and Exchange Commission adopted Regulation Best Interest in 2019, it was hailed as the most significant enhancement to broker-dealer conduct standards in decades. The rule, which took effect on June 30, 2020, raised the bar from the old “suitability” standard to something the SEC called “best interest.” But what does that actually mean for you as an investor — and does it truly protect you the way a fiduciary standard would?

The short answer is: Reg BI is a meaningful improvement, but it has important limitations and loopholes that investors need to understand. If your broker-dealer violated Reg BI when recommending investments, you may have grounds for a FINRA arbitration claim. This article breaks down what Reg BI requires, how it differs from other standards, and what your rights are when a broker falls short.

What Is Regulation Best Interest?

Regulation Best Interest (Reg BI) is an SEC rule that establishes a standard of conduct for broker-dealers and their associated persons when making recommendations to retail customers regarding securities transactions or investment strategies involving securities. It went into effect on June 30, 2020.

Reg BI was the centerpiece of the SEC’s Package of Rules and Interpretations adopted in June 2019, which also included:

The Form CRS (Client Relationship Summary) disclosure requirement
An interpretation of the fiduciary duty applicable to investment advisers
An interpretation of the “solely incidental” exclusion for broker-dealers

The stated goal of Reg BI was to address the confusion many investors experience about the differences between broker-dealers and investment advisers, and to enhance the standard of conduct that applies when broker-dealers make recommendations to retail investors.

Under Reg BI, a broker-dealer must act in the “best interest” of the retail customer at the time a recommendation is made — without placing the broker’s interest ahead of the customer’s interest. This is a higher standard than the previous suitability rule, but as we will explain, it falls short of the full fiduciary duty that applies to investment advisers.

Think your broker violated their best interest obligation? Call 1-888-885-7162 for a free consultation with attorneys who have 95 years of experience protecting investors, or contact us online.

The Four Component Obligations of Reg BI

Reg BI is not a single requirement — it is built on four component obligations that work together. Understanding each one is key to understanding your rights.

1. Disclosure Obligation

The Disclosure Obligation requires broker-dealers to provide retail customers with a document called Form CRS (Client Relationship Summary) at or before the earliest of a recommendation, the opening of an account, or the placement of an order. Form CRS must disclose:

Whether the firm is a broker-dealer, investment adviser, or both
The material fees and costs associated with the relationship
Conflicts of interest associated with the recommendation
Whether the firm and its financial professionals have legal or disciplinary history
A description of the services offered

The Disclosure Obligation also requires that broker-dealers disclose, at the time of a recommendation, all material facts relating to the scope and terms of the relationship, including material conflicts of interest associated with the recommendation.

Material facts are those that a reasonable investor would consider important in making a decision. This includes the costs of the recommended investment, the reason for the recommendation, and any financial incentive the broker has for making it.

2. Care Obligation

The Care Obligation is the heart of Reg BI. It requires broker-dealers to exercise reasonable diligence, care, and skill when making a recommendation to a retail customer. This means the broker must:

Understand the potential risks, rewards, and costs associated with the recommendation
Have a reasonable basis to believe that the recommendation is in the customer’s best interest based on their investment profile
Have a reasonable basis to believe that a series of recommended transactions, even if individually appropriate, are not excessive when taken together

The Care Obligation is important because it requires brokers to look beyond whether an investment is merely “suitable” — they must evaluate whether it is actually in your best interest, considering your full financial picture, goals, and circumstances.

3. Conflict of Interest Obligation

The Conflict of Interest Obligation requires broker-dealers to identify, disclose, and — critically — mitigate conflicts of interest associated with recommendations. This includes:

Disclosing all material conflicts of interest associated with the recommendation
Establishing, maintaining, and enforcing written policies and procedures reasonably designed to identify and at a minimum disclose, or eliminate, all conflicts of interest
Identifying and mitigating conflicts related to compensation structures, proprietary products, and third-party payments

This obligation is one of the most debated aspects of Reg BI. While it requires firms to address conflicts, it does not outright prohibit them. A broker-dealer can still recommend a proprietary product that pays higher commissions — as long as they disclose the conflict and have policies to mitigate it. Critics argue that this creates a significant loophole.

4. Compliance Obligation

The Compliance Obligation requires broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI as a whole. This means firms must have:

Supervisory systems to monitor recommendations for Reg BI compliance
Training programs to educate brokers on their obligations
Review processes for identifying and addressing potential violations
Documentation and record-keeping systems

The Compliance Obligation is important for investors because it creates an accountability structure. If a firm fails to maintain adequate compliance systems, it may be liable for Reg BI violations even if the individual broker acted in good faith.

Questions about whether your broker met their Reg BI obligations? Call 1-888-885-7162 for a free consultation, or contact us online. 95 years of experience helping investors.

Reg BI vs. Suitability vs. Fiduciary Duty: What’s the Difference?

One of the most important things for investors to understand is how Reg BI compares to the previous suitability standard and the fiduciary duty that applies to investment advisers. These are fundamentally different standards with different levels of protection.

The FINRA Suitability Rule (Reg BI’s Predecessor)

Before Reg BI, broker-dealers were primarily governed by FINRA Rule 2111 (Suitability), which required brokers to have a reasonable basis to believe that a recommended transaction or investment strategy was suitable for the customer based on their:

Investment profile (age, income, risk tolerance, investment experience, time horizon, liquidity needs)
The specific security or strategy being recommended
The customer’s overall portfolio (in the case of quantitative suitability)

The suitability standard was often described as a “know your customer” requirement. It asked whether the investment was appropriate, not whether it was the best option. A broker could recommend a higher-cost product that paid a bigger commission — as long as the product was technically suitable for the customer’s profile.

Regulation Best Interest

Reg BI raises the bar above suitability by requiring the broker to act in the best interest of the customer, not merely to recommend suitable investments. Key differences include:

Cost matters: Under Reg BI, brokers must consider the costs of recommended investments, not just whether they are suitable
Conflicts must be mitigated: Unlike the suitability rule, Reg BI requires brokers to identify and mitigate conflicts of interest
Reasonable diligence required: Brokers must exercise reasonable diligence, care, and skill — a higher standard than the suitability rule’s reasonable belief
Best interest at the time of recommendation: The obligation applies each time a recommendation is made

Fiduciary Duty (Investment Advisers)

Fiduciary duty is the highest standard of care in the investment industry. Under the Investment Advisers Act of 1940, investment advisers who are registered with the SEC owe their clients a fiduciary duty that includes:

Duty of care: The adviser must always act in the client’s best interest, not just at the time of a recommendation
Duty of loyalty: The adviser must not place their own interests ahead of the client’s, and must eliminate or fully disclose any conflicts of interest
Ongoing obligation: Fiduciary duty is continuous — it applies to the entire advisory relationship, not just to individual recommendations
Prohibition on conflicts: Unlike Reg BI, the fiduciary duty requires advisers to either eliminate conflicts of interest or fully disclose them and obtain informed consent

The critical distinction: Reg BI applies only at the moment of a recommendation and does not require the elimination of conflicts. Fiduciary duty is ongoing and requires that conflicts be eliminated or fully consented to.

SEC Enforcement Actions Under Reg BI

Since Reg BI took effect, the SEC has brought a number of enforcement actions against broker-dealers and their representatives for violations. These cases illustrate how the SEC is applying the rule and what conduct triggers enforcement:

Western International Securities (2022)

In June 2022, the SEC charged Western International Securities, Inc. and five of its brokers with violating Reg BI in connection with recommendations of L bond products issued by L Bonds of GWG Holdings, Inc. This was the first SEC enforcement action alleging violations of Reg BI.

The SEC found that the brokers recommended L bonds to retail customers without exercising reasonable diligence, care, and skill. The bonds were high-risk, illiquid products that were unsuitable for many of the customers to whom they were recommended. Western International agreed to settle the charges, paying a civil penalty and agreeing to retain an independent consultant to review its Reg BI compliance.

Hunt Capital Partners (2023)

The SEC charged Hunt Capital Partners with Reg BI violations related to recommendations of risky, illiquid investments to retail customers without adequately disclosing material risks and conflicts of interest. The firm failed to conduct adequate due diligence on the products and failed to establish and enforce compliance policies reasonably designed to achieve Reg BI compliance.

Ongoing Enforcement

The SEC has signaled that Reg BI enforcement will continue to intensify. In 2024 and 2025, the Division of Examinations announced that Reg BI compliance remains a priority examination area, with particular focus on:

Whether firms are adequately mitigating conflicts of interest related to compensation
Whether recommendations of complex or high-cost products comply with the Care Obligation
Whether Form CRS disclosures are complete and accurate
Whether firms have established adequate compliance policies and procedures

Has your broker recommended unsuitable or high-cost investments? You may have a claim under Reg BI. Call 1-888-885-7162 for a free consultation, or contact us online.

What Reg BI Doesn’t Cover: Limitations and Loopholes

While Reg BI represents a meaningful step forward, it has significant limitations that investors should be aware of:

Applies Only to Recommendations

Reg BI applies only when a broker-dealer makes a recommendation. It does not impose an ongoing duty of care. If your broker does not actively recommend a particular investment but simply executes your instructions, Reg BI’s obligations may not apply. This is a narrower scope than the fiduciary duty owed by investment advisers, which covers the entire advisory relationship.

Does Not Eliminate Conflicts of Interest

Reg BI requires brokers to mitigate — not eliminate — conflicts of interest. This means a broker can still recommend a product that pays them higher commissions, as long as they disclose the conflict and have policies in place to address it. Critics, including investor advocacy groups like the Consumer Federation of America, have argued that this is a fundamental weakness that leaves investors vulnerable.

Limited to Securities

Reg BI applies only to recommendations involving securities. It does not cover recommendations for insurance products, bank products, or other non-securities investments — even when those recommendations are made by the same broker-dealer. This can create a significant gap, particularly when brokers recommend fixed indexed annuities or other insurance-based products that may carry high costs and limited consumer protections.

No Private Right of Action

Reg BI is an SEC rule, and the primary enforcement mechanism is SEC action. There is no private right of action under Reg BI — meaning you cannot file a lawsuit directly alleging a Reg BI violation. However, as discussed below, Reg BI violations can serve as powerful evidence in FINRA arbitration claims based on common law theories such as breach of fiduciary duty, negligence, and fraud.

Form CRS May Not Be Sufficient

While Form CRS was intended to help investors understand the nature of their relationship with their broker, studies have found that many investors do not read or understand the form. A 2022 study by the SEC’s own Office of the Investor Advocate found that many investors still do not understand the difference between a broker-dealer and an investment adviser, even after receiving Form CRS.

Self-Directed Accounts Excluded

Reg BI does not apply to self-directed accounts where the broker-dealer does not make recommendations. If you manage your own investments without input from your broker, Reg BI’s protections do not cover those transactions.

Using Reg BI Violations in FINRA Arbitration

Although there is no private right of action under Reg BI, violations of the rule can be extremely powerful evidence in a FINRA arbitration claim. Here’s how:

Establishing Negligence and Breach of Duty

A Reg BI violation can serve as evidence that the broker-dealer breached the duty of care owed to the customer. If the broker failed to exercise reasonable diligence, care, and skill in making a recommendation, that failure may support common law claims for negligence or breach of fiduciary duty in FINRA arbitration.

Proving Unsuitability

Reg BI’s Care Obligation overlaps with but exceeds FINRA’s suitability rule. If a broker failed to meet the Care Obligation — for example, by recommending a high-cost, high-risk product without a reasonable basis to believe it was in the customer’s best interest — that failure may also constitute a violation of FINRA Rule 2111, which can be pursued directly in arbitration.

Demonstrating Conflict of Interest

If a broker recommended a product that paid higher commissions without adequately disclosing or mitigating the conflict, this may support claims for breach of fiduciary duty, fraud by omission, or failure to supervise. The Conflict of Interest Obligation provides a framework for proving that the broker placed their own financial interest ahead of the customer’s.

Supporting Punitive Damages

In cases where the broker’s conduct was particularly egregious — such as systematically recommending high-commission products to vulnerable investors — evidence of Reg BI violations may support an award of punitive damages in FINRA arbitration.

Key Evidence to Gather

If you believe your broker violated Reg BI, the following evidence may be critical:

Form CRS: Did you receive one? Was it accurate?
Account statements and trade confirmations: Document the recommendations and their outcomes
Correspondence with the broker: Emails, letters, and notes from conversations
The broker’s commission structure: Was the broker incentivized to recommend the product?
Firm compliance policies: Did the firm have adequate Reg BI compliance procedures?
Expert testimony: A securities industry expert can evaluate whether the recommendation met Reg BI’s standards

If your broker’s recommendations cost you money, you may have options. Call 1-888-885-7162 for a free consultation with former Wall Street defense lawyers who have a 98% success rate, or contact us online.

FAQ

What is Regulation Best Interest (Reg BI)?

Regulation Best Interest (Reg BI) is an SEC rule that took effect on June 30, 2020, requiring broker-dealers to act in the best interest of their retail customers when making recommendations about securities transactions or investment strategies. It consists of four component obligations: disclosure, care, conflict of interest mitigation, and compliance. Reg BI raised the standard above the previous suitability rule but does not impose the same fiduciary duty that applies to investment advisers.

How is Reg BI different from a fiduciary duty?

Reg BI applies only at the moment a recommendation is made and requires brokers to mitigate — not eliminate — conflicts of interest. Fiduciary duty, which applies to investment advisers registered under the Investment Advisers Act, is an ongoing obligation that requires the adviser to always act in the client’s best interest, eliminate or fully disclose conflicts, and obtain informed consent. Fiduciary duty provides broader and more continuous protection than Reg BI.

Can I sue my broker for violating Reg BI?

There is no private right of action under Reg BI, meaning you cannot file a lawsuit directly alleging a Reg BI violation. However, Reg BI violations can serve as powerful evidence in a FINRA arbitration claim based on common law theories such as negligence, breach of fiduciary duty, fraud, or unsuitability. An experienced investment fraud attorney can help you evaluate whether a Reg BI violation supports a claim.

What types of investments are most likely to involve Reg BI violations?

Reg BI violations are most common with recommendations involving high-commission products, complex or illiquid investments (such as non-traded REITs, private placements, and structured products), proprietary products sold by the broker’s own firm, and investments with limited transparency regarding fees and risks. If your broker recommended any of these products without adequate disclosure or analysis, a Reg BI violation may have occurred.

Does Reg BI apply to insurance products like annuities?

Reg BI applies only to securities. It does not cover recommendations for insurance products such as fixed indexed annuities or variable annuities, even when those products are recommended by a broker-dealer. However, separate regulations and state insurance laws may provide protections for annuity recommendations. If you were sold an unsuitable annuity, you may still have legal options — consult with an experienced attorney.

How long do I have to file a claim if my broker violated Reg BI?

FINRA’s eligibility rule generally requires that arbitration claims be filed within six years of the event giving rise to the claim. State statutes of limitations for related claims such as fraud, negligence, or breach of fiduciary duty vary but typically range from two to six years. Because these deadlines can be complex and the consequences of missing them are severe, it is important to seek legal guidance as soon as possible.

This article is for informational purposes only and does not constitute legal advice. Past results do not guarantee future outcomes.

Disclaimer: The information contained in any post on this website is derived from publicly available sources and is not guaranteed as to accuracy and often involves allegations which may or may not be proven at some point in the future.  All posts are believed to be accurate as of the time of original posting, but the accuracy and details are subject to and expected to change over time and which may contain opinions of the author at the time posted. 

Regulation Best Interest: What Investors Must Know