What Is Regulation Best Interest, and How Does It Affect Investors?

Regulation Best Interest (BI) is a rule of the Securities and Exchange Commission (SEC) that requires broker-dealers to only recommend financial products that are in the best interests of their customers. And this means that each broker-dealer must clearly identify any financial incentives or potential conflicts of interest that it may have with its recommended financial products. Below is some additional information on Regulation BI and the ways in which it affects investors. 

Background Of Regulation Best Interest

Regulation BI, which was first proposed on April 18, 2018, was approved on June 5, 2019. At the time of its proposal, the SEC stated that Regulation BI was intended to enhance the broker-dealer standard of conduct beyond existing suitability obligations. In addition, the SEC stated that Regulation BI would forbid a broker-dealer from putting its financial interests ahead of the interests of its retail customers when making recommendations.

Details  

Regulation BI includes the following:

• A care obligation – Broker-dealers are required to exercise reasonable diligence, skill, and care when making a recommendation to a retail customer. In addition, broker-dealers must understand the potential risks, rewards, and costs associated with such recommendations.

• A disclosure obligation – Broker-dealers must disclose all relevant facts about the products and services they provide.

• A compliance obligation – Broker-dealers must establish, maintain, and enforce procedures and policies designed to achieve compliance with Regulation BI as a whole.

• A conflict-of-interest obligation – Broker-dealers must establish, maintain, and enforce procedures and policies designed to identify, disclose, or eliminate conflicts of interest. Such policies and procedures must:

  • Prevent certain limitations on offerings from causing a firm or its financial professionals to place their interests or the interests of the firm ahead of the interests of their customers

  • Mitigate conflicts of interest that create incentives for the brokerage firm’s financial professionals to place their interests or the firm’s interests ahead of the interests of their retail customers

  • Eliminate sales quotas, sales contests, bonuses, and non-cash compensation based on the sale of certain securities or certain types of securities within a specified period of time.

Are You A Victim Of Financial Fraud?

At Simms Law, P.A., we represent investors who believe they’ve been the victims of financial fraud. Securities fraud comes in many forms, and it often involves the misrepresentation by brokers and financial professionals of the risks and key characteristics of investments, causing investors to purchase unsuitable securities. At Simms Law, we always take our clients’ concerns seriously and are aware of what is at stake when an investor suffers losses due to financial fraud. If you suspect that any suspicious activity has occurred in any of your investment accounts, or if you believe that you have been misled about the nature and risks of any of your investments, please contact our investor representation attorney today for a free consultation.