Regulation Best Interest Goes Into Effect

Beginning June 30, 2020, brokerage firms and their associated persons will have to comply with Regulation Best Interest (Reg BI), which sets a new standard of conduct when working with retail investors. The SEC adopted Reg BI, as the name suggests, to require firms and associated persons to work in the best interest of investor customers, not the firm’s own interest. Along with the overarching requirement that broker-dealers put the customer first, Reg BI includes four major obligations: 1) full disclosure of all material facts (such as of fees); 2) care, including exercise reasonable diligence, skill, as well as care, in making investment recommendations; 3) mitigation and control of conflicts of interest; and 4) compliance. Broker-dealers must implement policies and procedures to ensure these obligations are met. The Reg BI duties apply to investment recommendations, investment strategies, and account changes (such as rollovers).

Reg BI largely replaces FINRA’s suitability rule for many investors and is meant to be a heightened standard that firms must meet. The “care” obligation under Reg BI, however, aligns closely with the existing FINRA suitability rule and preserves suitability concepts. For institutional customers, in contrast to retail investors, the suitability rule is still in effect.

Reg BI also bars broker-dealers from using sales contests, sales quotas, bonuses, and other non-cash compensation based on a representative selling a specific investment or type of investment within a defined period of time.


This blog is intended to provide information to the general public and to practitioners about developments that may impact Oregon Investments.

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Cody Berne

Cody Berne is an attorney at Stoll Berne in Portland. Cody’s practice focuses on representing investors who lost money because of fraud and other misconduct, class actions, and business litigation. He is a member of the Public Investors Advocate Bar Association and the Oregon Trial Lawyers Association.

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Legal Disclaimer

The information contained in this blog does not constitute legal advice, and does not create an attorney-client relationship. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this blog.