Financial professionals are continuously navigating a rapidly evolving compliance landscape, with few regulations reshaping the industry as significantly as SEC Regulation Best Interest (Reg BI). This regulatory framework changes how broker-dealers interact with retail clients, redefining what it means to act in the client’s best interest and raising expectations for transparency, diligence, and ethical conduct.
To understand the impact of this shift, it’s important to start with the fundamentals of what Regulation BI is, why it was introduced, and who it’s designed to protect.
What is Regulation BI?
Regulation Best Interest, or Reg BI, is a conduct standard adopted by the U.S. Securities and Exchange Commission (SEC) that redefines how broker-dealers provide investment recommendations to retail customers. It was finalized on June 5, 2019, and became effective on June 30, 2020, establishing a new benchmark for investor protection and ethical practice in the industry.
SEC best interest regulation was introduced under the authority of the Securities Exchange Act to improve transparency, reduce conflicts of interest, and promote client-focused behavior in securities transactions. While it does not impose the same fiduciary duty that applies to registered investment adviser positions under the Investment Advisers Act, it requires broker-dealers to meet a higher standard than the historical suitability test.
The rule obligates firms to consider the retail customer’s financial situation, investment objectives, and risk tolerance before making a recommendation – placing the client’s needs at the center of the process. It also sets expectations around documentation, disclosure, and internal oversight.
At DFIN, we view this regulation not as a burden, but as an opportunity to build greater trust between firms and clients. With the right systems and guidance, compliance becomes more than a requirement – it becomes a strategic advantage.
Who Must Comply with Reg BI?
Regulation Best Interest applies to all SEC-registered broker-dealers and their associated persons when making an investment recommendation to a retail customer. It governs any recommendation involving securities transactions or investment strategy selections offered to individuals using their accounts primarily for personal, family, or household purposes.
Reg BI does not apply to every financial professional. For instance, it does not apply to registered investment advisers, who are governed by fiduciary standards set forth in the Investment Advisers Act. These advisers must already act in the best interests of their clients under a more expansive framework. However, many firms are dual registrants – meaning they operate as both broker-dealers and investment advisers. For these firms, navigating both compliance obligations simultaneously presents unique operational challenges.
Dual registrants must differentiate their conduct under Regulation BI versus their conduct as fiduciaries. One of the biggest hurdles here is clarity. Firms must educate their clients on what kind of service is being provided at every step and under which regulatory regime. These firms often serve clients in both capacities – sometimes as a broker, sometimes as a financial advisor – and must communicate clearly when each standard applies.
At DFIN, we help dual registrants build disclosures and internal frameworks that delineate responsibilities clearly.
The Four Obligations of Reg BI
The heart of Reg BI compliance is a general obligation to act in the retail customer’s best interest at the time a recommendation is made. To fulfill that requirement, the rule outlines four distinct components:
1. Disclosure Obligation
The disclosure obligation requires firms to provide upfront, detailed information about the relationship. This includes the types of services offered, fees and costs, the standard of conduct applied, conflicts of interest, and disciplinary history. One key tool is the Form CRS (Customer Relationship Summary), which must be concise yet comprehensive. At DFIN, we help firms craft compliant Form CRS documents that balance regulatory accuracy with readability.
2. Care Obligation
This obligation focuses on the thought process behind each recommendation. A broker must understand the product being recommended, have a reasonable basis to believe it's in the client's best interest, and take into account the retail customer's investment profile – including financial situation, objectives, risk tolerance, and time horizon.
This represents a substantial upgrade from the old “suitability” standard. It's not just about offering something acceptable – it’s about recommending what’s most appropriate after evaluating alternatives. The interest obligation reinforces this alignment by requiring that the client’s goals and the recommended path remain consistently in sync.
3. Conflict of Interest Obligation
Firms must adopt written supervisory procedures to identify, disclose, mitigate, or eliminate material conflicts of interest. Conflicts stemming from compensation arrangements, sales contests, third-party payments, or internal sales pressure must be addressed proactively.
Our team regularly advises broker-dealers on how to audit their incentive structures and adjust internal processes to remain aligned with regulatory expectations. These changes often require significant cultural shifts – but they pay dividends in long-term trust and credibility.
4. Compliance Obligation
The final requirement is the compliance obligation – firms must create and maintain robust, written policies and procedures designed to achieve compliance with Reg BI. This includes training programs, supervisory systems, documentation protocols, and internal monitoring mechanisms.
At DFIN, we provide our clients with end-to-end support in building and testing these frameworks. From standard operating procedures to interactive dashboards that track representative activity, our goal is to support sustainable compliance.
How Reg BI Impacts Broker-Dealer Conduct
The shift from suitability to best interest may sound semantic, but the implications are substantial. With Reg BI, every aspect of how a broker interacts with a retail client – product recommendation, presentation, documentation, follow-up – must be framed around the client’s outcome, not the broker’s profit.
For years, the suitability standard allowed for recommendations that were technically legal but not always optimal for the client. Reg BI changes that. Firms now need to:
- Conduct deeper diligence on complex or risky products
- Reassess sales incentives, contests, or volume-based bonuses
- Keep robust records of every recommendation and conversation
- Provide evidence that decisions were made in the client’s interest
This increases the operational burden – but it also offers the chance to reset client relationships on a foundation of integrity. Sales practices are evolving toward more consultative, informed approaches. And documentation is no longer optional – it’s essential.
With DFIN’s solutions, like ActiveDisclosure, firms can document, update, and file client-facing disclosures with ease – minimizing manual effort and maximizing regulatory confidence.
SEC Enforcement of Regulation Best Interest
Reg BI isn’t just policy – it’s enforceable. Since 2020, both the SEC and FINRA rule enforcers have launched examinations, issued alerts, and filed enforcement actions against broker-dealers who failed to meet expectations.
Among the early enforcement themes:
- Failure to deliver Form CRS or include all required elements
- Recommendations of complex, high-commission products to retail customers without proper documentation or alignment with client goals
- Weak or nonexistent supervisory processes for sales practices
- Outdated or non-existent written compliance policies
One notable case in 2022 involved a broker-dealer recommending high-risk debt instruments to retirees, where investigators found little evidence that the firm had assessed product suitability or considered alternatives. That case set the tone: regulators are taking Regulation BI seriously, and enforcement is escalating.
Here at DFIN, our audit preparation services and automated audit trails allows firms to validate compliance in real-time and respond quickly to regulatory inquiries.
Best Practices for Reg BI Compliance
We work with broker-dealers of all sizes to implement practical, actionable compliance programs. Some of the most effective practices include:
- Conducting firm-wide training sessions on Reg BI fundamentals and updates
- Developing centralized product review committees to assess risk profiles
- Aligning rep compensation models with long-term client outcomes
- Rewriting or updating policies using real-world use cases
- Running mock examinations that simulate regulatory inquiries
- Documenting every client interaction, inquiry, and recommendation in CRM systems
- Creating internal dashboards to track recommendation trends and potential red flags
Many firms also conduct ongoing financial due diligence with us to assess the cost, performance, and risk metrics of the products they recommend – an essential part of any care obligation.
Partnering With Experts to Support Reporting Compliance
SEC Regulation Best Interest is reshaping what it means to provide ethical, transparent, and client-focused investment advice. With expectations rising for broker conduct, firms must build systems that support all four Reg BI obligations: disclosure, care, conflicts, and compliance.
By understanding the distinctions from the fiduciary duties under the Investment Advisers Act, broker-dealers can better align recommendations with client needs and build a culture of accountability and trust.
Our solutions are built to serve today’s complex demands:
- Our thought leadership resources help clients stay current with market and regulatory changes, offering insight and strategic planning tools.
- We deliver documentation and reporting support through our audit infrastructure, streamlining both internal oversight and external response.
- Firms gain actionable insight into gaps in supervision, disclosures, and recordkeeping by working with our advisors and product experts.
When we support your team, you’re equipped to go from reaction to readiness. Our mission is to simplify the complex – helping your firm not only meet regulatory demands but also improve transparency, client satisfaction, and risk posture.
Our tools, resources, and expert advisors are built to support this transformation. From crafting compliant documents to analyzing firm behavior through audit trails and maintaining oversight through regulatory workflows, we help firms manage compliance without losing sight of business goals.
You can trust DFIN to be your partner in evolving compliance with purpose and clarity
For official guidance and ongoing interpretation, refer to:
- SEC Reg BI Final Rule (Official SEC form document)
- SEC FAQ Form CRS)
- FINRA Reg BI resources (Official FINRA reference page)
For a deeper dive into modern expectations for financial reporting, visit our knowledge hub.
