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What Reg BI actually requires
Reg BI is built on four obligations that a broker-dealer must satisfy whenever it makes a recommendation to a retail customer. None of them are checkboxes. Each one shapes how a recommendation is made, documented, and defended later.
- Disclosure Obligation. Provide the retail customer, in writing and before or at the time of the recommendation, full and fair disclosure of all material facts relating to the scope and terms of the relationship, and all material facts relating to conflicts of interest.
- Care Obligation. Exercise reasonable diligence, care, and skill to understand the product, the customer's profile, and whether the recommendation is in that customer's best interest.
- Conflict of Interest Obligation. Establish, maintain, and enforce written policies reasonably designed to identify and address conflicts — including eliminating conflicts that create an incentive to place the firm's interest ahead of the customer's.
- Compliance Obligation. Establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI as a whole.
Who Reg BI applies to
Reg BI applies to broker-dealers and their associated persons when they make a recommendation of any securities transaction or investment strategy involving securities to a retail customer. A retail customer is a natural person, or the legal representative of a natural person, who receives a recommendation and uses it primarily for personal, family, or household purposes.
Reg BI does not extend the standard to investment advisers — advisers are separately bound by their fiduciary duty under the Investment Advisers Act. But for dual-registrants and hybrid firms, the practical effect is that most retail recommendations sit under one standard or the other at all times.
How a firm proves it met the Care Obligation
The Care Obligation is where most enforcement focus lands. Proving it after the fact requires a record that answers three questions for any specific recommendation:
- What did the firm know about the customer's investment profile at the time?
- What reasonable basis did the firm have for believing the recommendation could be in the customer's best interest — both for any retail customer and for this one?
- If alternatives existed, why was this one chosen?
Firms that struggle here usually struggle in the same way: the rationale lived in an advisor's head or in a chat thread, but never made it into a system that an examiner can pull. The remedy is not more forms. It is capturing the reasoning at the moment of the recommendation, in a structure that survives staff turnover and examination cycles.
Form CRS — the disclosure that pairs with Reg BI
Reg BI is paired with Form CRS, a separate but related rule that requires broker-dealers and investment advisers to deliver a brief relationship summary to retail investors. Form CRS does not satisfy Reg BI's Disclosure Obligation on its own — it is one input among several. Firms that treat Form CRS delivery as the end of their disclosure work have repeatedly drawn enforcement attention.
What examiners look for
SEC and FINRA exam priorities have made the patterns clear. Examiners look for evidence that the firm has moved past policies-on-paper to policies-in-practice: rollover recommendations with documented analysis of cost and benefit, complex product approvals that show comparative analysis, conflict registers that are reviewed rather than archived, and supervisory frameworks that catch the recommendations that fail rather than rely on advisors to self-report.
How StratiFi thinks about Reg BI
The firms that defend Reg BI well are not the ones with the longest policy manuals. They are the ones that can reconstruct, for any specific recommendation, the customer profile, the alternatives considered, the reasoning applied, and the supervisory checks that ran — without scrambling. That capability compounds. Each examined recommendation makes the next one easier to defend, because the reasoning patterns become reusable rather than one-off.
Frequently asked questions
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When did Reg BI take effect?
Reg BI took effect on June 30, 2020. The SEC adopted the rule in June 2019 and gave firms a one-year transition window. Compliance has been required ever since. -
Does Reg BI apply to institutional accounts?
No. Reg BI applies only to recommendations made to retail customers. Institutional accounts remain governed by suitability and other applicable rules — but firms with mixed retail and institutional business need to be precise about how they classify each customer. -
How is Reg BI different from a fiduciary standard?
A fiduciary standard, like the one investment advisers operate under, is a continuous duty of loyalty and care across the entire advisory relationship. Reg BI applies at the point of a recommendation. The two standards produce similar outcomes in many cases, but the trigger and the scope are different. -
What does it mean to "mitigate" a conflict under Reg BI?
Mitigation means establishing controls — disclosure, supervision, compensation design, or product limits — that meaningfully reduce the incentive for an associated person to place the firm's interests ahead of the customer's. Disclosure alone is not mitigation. The SEC has been explicit that some conflicts must be eliminated rather than mitigated.