The SEC's Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934 establishes a "best interest" standard of conduct for broker-dealers and associated persons when they make a recommendation to a customer of any securities transaction or investment strategy. These obligations are critical to ensuring investor protection and promoting fair dealings with customers and ethical sales practices.
Reb BI requires that a broker-dealer exercise reasonable diligence, care, and skill when making a recommendation to a retail customer. The broker-dealer must understand potential risks, rewards, and costs associated with the recommendation. The broker-dealer must then consider these factors in light of the customer’s investment profile and make a recommendation that is in the customer’s best interest . The standard of conduct draws from key fiduciary principles and cannot be satisfied through disclosure alone.