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What is Regulation Best Interest (Reg BI)?

By George C. Miller of Shustak Reynolds & Partners, P.C. posted on Friday, December 6, 2019.

In June 2019, the SEC adopted a new rule under the Securities and Exchange Act of 1934 requiring broker-dealers and their representatives to act solely in the “best interest” of their retail clients when making investment recommendations.  The so-called “Regulation Best Interest,” or “Reg BI” imposes a new standard of conduct on broker-dealers and their registered representatives beyond the existing suitability obligations and, according to the SEC, will align the expected standard of conduct with retail customers’ reasonable expectation that the financial professionals with whom they work will, in fact, act in their best interest.  In addition, Reg BI will impose new conflicts of interest rules and require broker-dealers to establish, maintain and enforce policies reasonably designed to identify and fully and fairly disclose any conflicts of interest to investors.  The SEC adopted the rule on September 10th, 2019, and broker-dealers must comply fully by June 30th, 2020. 

Under Reg BI, when making an investment recommendation the broker-dealer must comply with four specific obligations:  (1) provide disclosure before or at the time of the recommendation about the relationship between the retail customer and the broker-dealer; (2) exercise reasonable diligence, care and skill in making the recommendation; (3) establish, maintain and enforce policies and procedures reasonably designed to address conflicts of interest; and (4) establish, maintain and enforce policies and procedures reasonably designed to achieve compliance with Reg BI.  More information on the specific requirements of Reg BI is available here.

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Partner George C. Miller can be reached in the firm’s San Diego office at (619) 696-9500.

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