The Securities and Exchange Commission (SEC) Regulation Best Interest, known as Reg BI, requires brokers to put a retail investor’s interest ahead of their own when recommending a securities transaction or investment strategy.
Reg BI replaced the older suitability standard in 2020 and applies to every broker-dealer registered in the United States. A violation of Reg BI may give an investor grounds to recover losses through a FINRA arbitration claim.
Most investors never hear the term Reg BI until a broker’s recommendation goes wrong. A retirement account concentrated in one risky product, a variable annuity swap that generated a commission, or a private placement pushed on a client who never asked for it all raise the same question. Did the broker actually follow the standard the SEC put in place?
At Erez Law, we review these situations every week for investors across the country. Jeffrey Erez founded the firm to focus exclusively on securities arbitration and litigation, and the firm has recovered hundreds of millions of dollars for investors in FINRA cases.
Call (888) 293-3445 to discuss whether a broker’s recommendation may have violated Reg BI.
Key Takeaways About SEC Regulation Best Interest
- Reg BI requires brokers to act in a retail customer’s best interest at the time a recommendation is made, not just to recommend something merely suitable.
- The rule breaks down into four separate obligations covering disclosure, care, conflicts of interest, and firm compliance procedures.
- A broker may violate Reg BI even if the investment itself was not fraudulent, if the recommendation ignored the customer’s goals or an available lower-cost alternative.
- Reg BI does not create a private right to sue in federal court, but a violation may support a claim in FINRA arbitration.
- Firms and brokers who violate Reg BI face SEC and FINRA enforcement actions, and those actions may provide evidence supporting an investor’s own claim.
How Erez Law Reviews Reg BI Violations for Investors
At Erez Law we examine account statements, trade confirmations, and communications with a broker to determine whether a Reg BI violation caused an investor’s losses. We represent individual investors, retirees, trusts, and family partnerships nationwide on a contingency fee basis, meaning a client owes no legal fees unless the case recovers money.
Jeffrey Erez has led trial counsel on multiple FINRA arbitration cases involving broker misconduct, including cases against major wirehouses over structured notes, non-traded real estate investment trusts (REITs), and variable annuity switches.
Those cases turn on the same Reg BI components discussed on this page, applied to the specific product a broker pushed on a client.
A Reg BI review starts with the four-part framework the SEC built into the rule. Understanding what each part requires helps an investor recognize whether their own broker actually met the standard.
- Disclosure Obligation: The broker tells the customer about the recommendation’s material facts, including fees, costs, and conflicts of interest.
- Care Obligation: The broker must use reasonable diligence to understand the recommendation and confirm it fits the customer’s profile.
- Conflict of Interest Obligation: The firm must identify and address conflicts, including incentives tied to specific products.
- Compliance Obligation: The firm maintain written policies reasonably designed to comply with Reg BI across the entire brokerage.
A missing disclosure or an unaddressed conflict on any one of these four points may support a claim. We build each case around whichever component the evidence shows the broker or firm failed to follow.
What Is Regulation Best Interest Under SEC Rules?
Regulation Best Interest is a federal rule adopted by the SEC that requires broker-dealers to act in a retail customer’s best interest when recommending securities transactions or investment strategies. The rule took effect in 2020 under the Securities Exchange Act of 1934 and replaced the older FINRA suitability standard for broker recommendations to individual investors.
Before Reg BI, brokers only had to show that a recommendation was suitable for a general category of investor. Reg BI raised that bar. A broker now has to show the recommendation served the specific customer’s best interest, factoring in cost, risk, and available alternatives at the time of the recommendation.
Reg BI Only Applies to Recommendations, Not Every Account Decision
A broker’s Reg BI duty triggers the moment they make a recommendation to a retail customer, whether that recommendation covers a single trade, an account type, or a broader investment strategy. Routine account maintenance or unsolicited trades a customer places on their own do not trigger the same duty.
This distinction matters when reviewing what happened in an account. A broker who suggested moving a retirement account into a variable annuity made a recommendation covered by Reg BI. A customer who called in and asked to buy a stock on their own generally did not receive a recommendation.
Does Reg BI Protect Investors From Bad Recommendations?
Reg BI protects investors by requiring brokers to document why a specific recommendation served the customer’s interest rather than the broker’s own. The rule does not guarantee good outcomes, and a losing investment is not automatically a Reg BI violation. What matters is whether the broker followed the required process before making the recommendation.
The SEC and the Financial Industry Regulatory Authority (FINRA) both bring enforcement actions against brokers and firms that fail to meet Reg BI standards. In 2024, the SEC announced that JP Morgan affiliates agreed to pay $151 million to resolve enforcement actions tied in part to Reg BI compliance failures, and FINRA has brought dozens of similar disciplinary actions against smaller firms and individual brokers.
Enforcement Actions Do Not Replace an Investor’s Own Claim
A regulatory fine paid to the SEC or FINRA does not put money back into an individual investor’s account. Enforcement penalties go to the government, not to the customers who suffered the losses.
An investor who wants their own losses back generally needs to pursue a separate FINRA arbitration claim against the broker or firm. Evidence from a prior enforcement action against the same firm or broker may strengthen that individual claim considerably.
How Does Reg BI Compare to the Fiduciary Standard for Investment Advisers?
Reg BI sets a best interest standard for broker-dealers, while investment advisers operate under a stricter fiduciary standard established by the Investment Advisers Act of 1940. The two standards sound similar, but they differ in how ongoing the duty is and how compensation gets structured, which affects what an investor may recover if something goes wrong.
An investor working with a broker under Reg BI receives that protection only at the moment of a recommendation. An investor working with an investment adviser receives an ongoing duty of loyalty and care that applies continuously to the entire relationship, not just to individual transactions.
The table below lays out the main differences investors run into most.
| Feature | Broker-Dealer (Reg BI) | Investment Adviser (Fiduciary Standard) |
| Governing rule | SEC Regulation Best Interest (2020) | Investment Advisers Act of 1940 |
| Duty timing | Applies at the time of each recommendation | Applies continuously throughout the relationship |
| Compensation model | Often commission-based, per transaction | Often fee-based, tied to assets under management |
| Conflict of interest handling | Firm must identify and address conflicts | Adviser must avoid or fully disclose conflicts |
| Typical dispute forum | FINRA arbitration | FINRA arbitration, AAA arbitration, or state and federal courts |
| Regulator | Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) | Securities and Exchange Commission (SEC) and state securities regulators |
The forum column matters more than it looks. A claim against a broker generally proceeds through FINRA Dispute Resolution Services, while a claim against an investment adviser may proceed through arbitration or through a state or federal court, depending on the adviser’s registration and the client agreement.
Investors sometimes assume their financial professional is a fiduciary simply because that person gives investment advice. Checking whether your account sits with a broker-dealer or an investment adviser through FINRA BrokerCheck clarifies which standard actually applied to your recommendation.
What Broker Conduct Commonly Violates Reg BI?
Broker conduct that most often violates Reg BI involves a mismatch between the product recommended and the customer’s actual financial profile, paired with an undisclosed incentive for the broker. Excessive trading, unsuitable product switches, and concentration in a single high-commission product show up repeatedly in Reg BI enforcement actions and FINRA claims.
Recognizing these patterns in your own account statements may help you decide whether a recommendation deserves a closer look. Several categories appear again and again in Reg BI cases handled by regulators and by firms like ours.
- Recommending a variable annuity switch that generated a new commission without a clear benefit to the customer.
- Steering a retail customer into a proprietary or in-house product over a comparable lower-cost alternative.
- Concentrating a customer’s account in one sector or product against their stated risk tolerance.
- Recommending frequent trading that produced commissions without matching the customer’s investment goals.
- Failing to disclose that the broker earned a higher payout for recommending a specific product.
None of these patterns alone proves a violation. Together with account records and broker communications, they form the kind of evidence an attorney reviews when evaluating whether Reg BI’s care and disclosure obligations were met.
How Do You Prove a Reg BI Violation in a FINRA Claim?
Proving a Reg BI violation in a FINRA arbitration claim requires showing that a broker’s recommendation failed to meet one of the rule’s four obligations at the time it was made. Account records, new account forms, and any written communications from the broker typically form the core evidence in these cases.
FINRA rules require brokerage firms to maintain records showing how a recommendation was developed and reviewed. Requesting these records early in a claim, through the discovery process under the FINRA Code of Arbitration Procedure, often reveals whether the firm’s own compliance department flagged concerns about the broker’s conduct.
Timing matters too. FINRA’s six-year eligibility rule generally limits claims to events that occurred within six years of filing, so reviewing a possible Reg BI violation sooner rather than later preserves more options.
FAQ for SEC Regulation Best Interest
Is Regulation Best Interest a law or just SEC guidance?
Can I sue my broker directly in court for violating Reg BI?
Does Reg BI apply to investment advisers as well as brokers?
How is Reg BI different from the old suitability standard?
Did Reg BI eliminate broker commissions or conflicts of interest?
What should I do if I think my broker violated Reg BI?
Take Action if Your Broker May Have Violated Regulation Best Interest
Jeffrey Erez, Structured Product Lawyer
A broker who failed to meet Reg BI’s care or disclosure requirements may be responsible for losses that resulted from that recommendation, regardless of how the investment performed afterward. Waiting to review your account only narrows your options under FINRA’s filing deadlines.
We review Reg BI cases on a contingency fee basis for investors nationwide. Call (888) 293-3445, or visit the office at 1 SE 3rd Avenue, Suite 1670, Miami, FL 33131 to have your broker’s recommendation reviewed.
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