Regulation Best Interest is a rule adopted by the SEC under the Securities Exchange Act of 1934, with a compliance date of June 30, 2020, governing broker-dealers' recommendations of securities transactions, investment strategies, and account types to retail customers. Its general obligation is that the broker act in the customer's best interest at the time of the recommendation without placing the firm's or representative's interests ahead of the customer's. The rule replaced the suitability standard as the conduct benchmark for retail brokerage recommendations, deliberately raising the bar while stopping short of imposing the Investment Advisers Act fiduciary duty on the brokerage model.
Regulation Best Interest (Reg BI)
Regulation Best Interest is the SEC conduct rule, in force since June 30, 2020, requiring broker-dealers to act in a retail customer's best interest when recommending securities — a standard above the old suitability rule, but still short of the fiduciary duty investment advisers owe.
Reviewed by
Steven Fox, CFP®, EA
Updated
Quick Summary
- Reg BI applies when a broker-dealer or its representative recommends a securities transaction, investment strategy, or account type to a retail customer.
- It imposes four component obligations — disclosure, care, conflict of interest, and compliance — on the firm and its representatives.
- The care obligation requires considering costs and reasonably available alternatives, which the old suitability standard never demanded.
- The duty attaches at the time of each recommendation; it creates no ongoing obligation to monitor the account.
- Reg BI arrived alongside Form CRS, the short relationship summary that tells retail investors which kind of relationship — brokerage, advisory, or both — they are in.
Definition
Advanced Explanation
The general obligation is satisfied through four component obligations, and the details are where the rule bites. The disclosure obligation requires written disclosure, before or at the recommendation, of the material facts of the relationship — capacity, fees, the scope of services, and material conflicts. The care obligation is the core: the broker must understand the product, have a reasonable basis to believe the recommendation is in this customer's best interest given their investment profile, and — the significant upgrade over suitability — consider the costs and reasonably available alternatives. It explicitly reaches recommendations of account types, including the consequential one: rolling a workplace retirement plan into an IRA. The conflict of interest obligation requires policies to identify and at minimum disclose conflicts, to mitigate incentives that put the firm ahead of the customer, and to eliminate certain practices outright — sales contests, quotas, and bonuses tied to selling specific securities within a limited time. The compliance obligation requires firm-wide systems to make the rest actually happen.
What Reg BI is not, by design: a fiduciary duty. It attaches to the moment of recommendation rather than the relationship, so no general duty to monitor the account follows the sale. It requires conflicts to be disclosed and mitigated, not avoided. And "best interest" is not defined as lowest cost — a costlier product can be recommended with a documented reason. Investment advisers, by contrast, owe duties of care and loyalty across the whole advisory relationship under the Investment Advisers Act of 1940. For the many advisors who are dually registered, both regimes apply to the same person with the same client — brokerage accounts under Reg BI, advisory accounts under fiduciary duty — which is precisely the confusion Form CRS was created to untangle.
Used in a Sentence
“Before recommending the rollover, the broker documented costs and alternatives under Regulation Best Interest — the account-type recommendation itself is squarely covered by the rule.”
How It Works
In practice, a Reg BI recommendation triggers a sequence: the customer receives Form CRS and the firm's disclosure documents; the representative matches the recommendation against the customer's investment profile and documents why it beats reasonably available alternatives on the firm's menu; and the firm's compliance systems supervise the whole flow.
A hypothetical example of where the rule changes outcomes: Gloria, 62, retires with $400,000 in her 401(k), and a broker considers recommending a rollover into an IRA invested in funds the firm distributes. Recommending that rollover is itself covered by Reg BI — the broker must weigh it against the reasonably available alternative of leaving the money in the plan, comparing the plan's institutional pricing (say, 0.05% index funds) against the proposed IRA's costs (say, 0.60% funds), the services offered, and Gloria's needs. If the IRA's costs are twelve times higher with no offsetting benefit to Gloria, a compliant best-interest analysis is hard to write — which is the rule working as intended. (Numbers hypothetical, for illustration.)
Pros and Cons
Pros
- A genuine upgrade over suitability: cost-and-alternatives analysis, conflict mitigation, and coverage of rollover and account-type recommendations.
- Bans the ugliest sales incentives — product-specific contests, quotas, and time-limited bonuses.
- Paired with Form CRS, it gives retail investors a fighting chance to know which duty their professional owes.
Cons
- Not a fiduciary duty — the obligation ends at the recommendation, with no ongoing monitoring requirement.
- Conflicts must be disclosed and mitigated, not eliminated, and "best interest" is not defined to mean lowest cost.
- The standard's name invites customers to assume more protection than the text delivers — the gap between label and legal content persists.
People Also Asked
Answers to the most frequently asked questions.
Is Regulation Best Interest the same as a fiduciary duty?
No. Reg BI requires a broker to act in a retail customer's best interest at the time of a recommendation, with disclosure, care, conflict, and compliance obligations behind it. A fiduciary duty — what registered investment advisers owe under the Investment Advisers Act of 1940 — covers the ongoing relationship, pairs loyalty with care, and holds the adviser to the client's interest continuously, not transaction by transaction.
Who does Regulation Best Interest protect?
Retail customers — natural persons (and their non-professional legal representatives) receiving securities recommendations used primarily for personal, family, or household purposes. It does not govern recommendations to institutions, and it applies to broker-dealers and their registered representatives, not to investment advisers, who operate under their own fiduciary standard.
Does Reg BI cover 401(k) rollover recommendations?
Yes, explicitly. Recommendations of account types — including rolling a workplace plan into an IRA — are covered, and the broker must have a reasonable basis to believe the rollover serves your best interest after considering alternatives like leaving the money in the plan, comparing costs, services, and investment options. Given how much money moves through rollovers, this is arguably the rule's most consequential application.
How do I know if Reg BI or a fiduciary standard applies to my account?
Read the firm's Form CRS, the plain-language relationship summary every broker-dealer and investment adviser must give retail investors — it states whether you have a brokerage relationship (Reg BI), an advisory relationship (fiduciary duty), or both. Then check the individual at brokercheck.finra.org and adviserinfo.sec.gov; a person appearing in both systems is dually registered, and the duty depends on which account you're discussing.
Have a question a definition can't answer?
Advice-only advisors answer questions like this for a transparent flat fee — no products, no commissions, no asset management.
Find an Advisor