SEC Regulation Best Interest (Reg BI)

Regulation Best Interest (BI) is a 2019 Securities and Exchange Commission (SEC) rule that requires broker-dealers to only recommend financial products to their customers that are in their customers best interests, and to clearly identify any potential conflicts of interest and financial incentives.

The Regulation BI falls under the Securities and Exchange Act of 1934 and establishes a standard of conduct for broker-dealers when recommending any securities transaction or investment strategy.  To view the SEC rule and interpretations:  SEC Rule - Reg BI

KEY TAKEAWAYS

• Regulation Best Interest (BI) is a SEC regulation that attempts to improve safeguards for investors and standardize conduct of broker-dealers and financial advisors.
• Similar to the proposed fiduciary rule, BI states that financial professionals make investment recommendations that serve the client first and foremost.
• Previously, brokers were only held to the “suitability standard.” This meant that when brokers advised their clients, they only had to recommend investments that were suitable, but not necessarily in their clients' best interest.

Form CRS - Client Relationship Summary

Broker-dealers will be required to deliver a relationship summary to retail investors at the beginning of their relationship. Firms will summarize information about services, fees and costs, conflicts of interest, legal standard of conduct, and whether or not the firm and its financial professionals have disciplinary history. The relationship summary will have a standardized question-and-answer format to promote comparison by retail investors in a way that is distinct from existing disclosures. The relationship summary will permit the use of layered disclosure so that investors can more easily access additional information from the firm about these topics. It also will highlight the Commission’s investor education website, Investor.gov, which offers the investing public educational information, including a series of educational videos designed to provide ordinary investors with some basic information about broker-dealers and investment advisers.

 

SEC Regulation BI – Form CRS Delivery Information

The follow are the procedures we must follow to comply with Reg BI – Form CRS delivery and proof of such delivery.

When do we need to deliver Form CRS:

1. Any time a new account is opened.

2. When the financial professional recommends that the client roll over assets from a retirement account, including a 401(k) plan, into a new or existing account or investment.

3. When the financial professional recommends or provides a new brokerage service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account.

4. Within 30 days of a client’s request to receive Form CRS.

5. Within 60 days of the firm making a material change to Form CRS.

Delivery options – Firm must have proof of delivery:

 

Delivery options for 1-4 above:

1. Email – Form CRS must be first attachment

2. Mail – Form CRS must be on the top of all other documents.

3. Physically to Client – Form CRS must be the first document you hand them.

4. Put on client portal – Form CRS must be first document uploaded.

Delivery option for 5 above:

1. The firm will send out Form CRS and applicable disclosures for any material changes.