traders raising their hands

What is Reg BI?

Regulation Best Interest also referred to as Reg BI, is a new rule sculpted by the Securities and Exchange Commission (SEC) put into effect on June 30, 2020.  In essence, this new rule is designed to ensure financial professionals and their firms are creating a relationship of transparency regarding their practices, services, fees, conflicts of interest, and products for the clients they serve. Aimed at broker-dealers, Reg BI allows retail investors to receive a greater knowledge of a firm’s personality, the services they provide, what their recommendations are going to cost, and how clients pay for those products and services.

The DOL Fiduciary Rule

In 2015, President Obama called upon the Department of Labor to update the rules and requirements affecting how investment advisors and broker-dealers conducted business when handling retirement funds.  It was designed to expand and update an ERISA policy from 1974, taking changes in retirement saving trends into consideration.

At its core, this policy was aimed at creating a higher level of accountability than had been previously required of brokers, registered investment advisors,  planners, insurance agents, or other professionals who regularly handled financial investments for their clients.  The DOL Fiduciary Rule did not pass and was replaced by Regulation Best Interest.

What Does Being a Fiduciary Mean?

In the strictest sense of legal terms, being a fiduciary means that one is obligated and bound to act ethically in the interest of someone else.  In finance, this means that when managing your assets, an investment advisor is responsible for putting a client’s needs above their own, often referring to the gains that an advisor might receive when making recommendations to your portfolio.  Fiduciary standards currently vary by state and are constantly evolving to meet consumer needs.  At this time, financial professionals with a broker/dealer are not considered fiduciaries but fall under Reg BI.

READ MORE:  Broker-Dealer vs.  Investment Advisor

How Reg BI Affects the Broker-Dealer-Client Relationship

Several aspects of the broker-client relationship are being affected.  As a rule, broker-dealers and their financial professionals make investment recommendations that are suitable for each individual retail account.  Ultimately, the investor makes the final decision to buy, sell, or hold specific investments in their portfolio.  When moving large sums of money, it’s important for clients to know that they can trust their financial professional to guide them through the process.


Disclosure is an essential part of the B/D-client relationship.  Think of this as an abundance of caution. A broker-dealer is obligated to disclose what’s at stake, and how money is exchanging hands throughout the entire process and at key points during initial negotiation.  Potential clients may initially receive verbal instructions on where to find a firm’s form CRS.   Disclosures are found in the form of CRS, client trade confirmations, and monthly or quarterly client statements.

Nature of the Relationship

The first point a disclosure should cover is the nature of the relationship between a financial professional and a client.  It’s important for a client to understand exactly what services a firm provides, and in what capacity they can act.  Brokerage and investment advisory services and fees differ; it is important for investors to understand the differences.  Free and simple tools are available to research firms and financial professionals at

In the event that your broker-dealer is also a registered financial advisor, this too should be discussed, as it will alter the products and services a firm is able to offer.  If a financial professional is dual registered, they must specify what “hat” they’re wearing for each individual recommendation, and what their role is for each.  This can change by account type, and by service offered.

Account Monitoring

Many firms offer and charge for account monitoring services, but many broker-dealers do not.  

Many financial professionals voluntarily review accounts for purposes of providing buy, sell or hold recommendations and these reviews are solely incidental to a broker-dealer’s securities business.  

Materials Fees and Costs

In addition to defining the nature of the financial professional-client relationship, the cost of materials and fees should be clearly outlined.  If there are costs associated with any particular decision made on the account, this should be discussed on the front end and at the time the decision is made.

A prospectus may be employed as a useful tool to remind clients just what it is they are committing to.  In short, a broker-dealer should over-disclose fees, materials, and intent.

Type and Scope of Services

To be clear, a firm thrives by building a client base, just like any other business.  And like other businesses, it’s imperative for the success of the client that a financial professional or firm makes clear exactly what kinds of services they’re able to provide.

Additionally, if a firm uses a proprietary product or service, it is important that an investor understands that going in, as well as all of the fees associated with it.  The same goes for practices that are not or will not be employed, in the event that the client is looking for a specific strategy or tactic when investing their money.

In some cases, a client and firm aren’t a good fit and that’s okay, but it should be a serious considering factor when it comes to financial decision making.

Duty of Care

Regulation Best Interest also demands a duty of care.  Firms and financial professionals have a responsibility to be knowledgeable and practice due diligence when it comes to understanding the risks and rewards derived from the recommendations they make.  They are obligated to have a reasonable basis to believe that their recommendations go further than basic suitability and are made in the best interest of the client.

As a result, many firms are being asked to look inward and ask why they are offering certain products to their customers.  Are these products benefiting their clients or their own bottom lines?

Conflicts of Interest

We briefly mentioned conflicts of interest, but what does that mean for broker-dealers?  In financial terms, conflict is defined as an interest to incline a person to make a recommendation that is not disinterested, whether conscious or unconscious.  Reg BI requires that certain practices, that have been popular in the past, cease.  These include items like sales contests, bonuses, and other incentives designed to motivate agents to recommend more transactions.  Investment Advisors also have conflicts of interest that are available in their specific form of CRS.

However, not all conflicts are bad or pressure based.  Should a conflict arise, it’s important that it be mitigated and disclosed so the client and financial professional can operate under the understanding of informed consent.

Our Firm And Training

At Carty & Company, we are dedicated to making sure our training practices, standards, and company procedures are up to date with the very latest industry information.  It is our promise to provide excellent service for each and every one of our clients with complete transparency.  We are here to help guide you on your path to financial success.

The commentary is limited to the dissemination of general information pertaining to Carty & Company, Inc. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any security, market sector or investment strategy. There is no guarantee that the information supplied is accurate or complete. Carty is not responsible for any errors or omissions, and provides no warranties with regards to the results obtained from the use of the information. Nothing in this document is intended to provide any legal, accounting or tax advice. This information is subject to change without notice and should not be construed as a recommendation or investment advice. You should consult an attorney, accountant or tax professional regarding your specific legal or tax situation. Carty & Company is a registered broker-dealer, member FINRA and SIPC.