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SEC Regulation Best Interest, known as Reg BI, is a federal rule that requires broker-dealers to act in a retail customer’s best interest when recommending any securities transaction, investment strategy, or account type. Reg BI took effect on June 30, 2020, and a broker’s failure to meet its standards may support an investor’s claim to recover losses through FINRA arbitration.
Most investors first hear about Reg BI after something has already gone wrong. A retirement account loaded into a single high-commission product, an annuity exchange that mostly benefited the broker, or an illiquid private placement sold to a retiree all raise the same question: did the broker meet the legal standard the SEC created?
Kaplan Rothstein Prüss Peraza, P.A. (KRP2) has represented individual and institutional investors in securities arbitration and litigation since 2003, and the firm’s attorneys have recovered more than $200 million for victims of investment fraud and stockbroker misconduct. Founding partner Jeffrey B. Kaplan has handled securities arbitration matters for roughly 30 years and was nominated by FINRA to serve on its National Arbitration and Mediation Committee, the advisory body that drafts the rules governing FINRA arbitration.
If you believe a broker’s recommendation cost you money, call 1.855.758.0653 for a free consultation. KRP2 handles investor claims on a contingency fee basis, which means you owe no legal fees unless the firm recovers money for you.
Regulation Best Interest is an SEC rule, codified as Rule 15l-1 under the Securities Exchange Act of 1934, that prohibits broker-dealers from placing their own financial interests ahead of a retail customer’s when making a recommendation. It replaced the older suitability standard for broker recommendations and became enforceable on June 30, 2020.
Before Reg BI, a broker generally only had to show that a recommendation was suitable for someone with the customer’s general profile. Reg BI raised that standard. Under the rule, the broker must have a reasonable basis to believe the recommendation is in that specific customer’s best interest at the time it is made, taking into account the customer’s investment profile, the costs of the recommendation, and reasonably available alternatives.
The rule text is published at 17 CFR § 240.15l-1, and the SEC maintains a plain-language summary of the rule’s requirements in its Regulation Best Interest compliance guide. FINRA, which regulates broker-dealers day to day, examines member firms for Reg BI compliance and publishes its own guidance on the rule.
Reg BI applies whenever a broker or their firm makes a recommendation to a retail customer involving a securities transaction, an investment strategy involving securities, or the type of account to open. That includes recommendations to roll a workplace retirement plan into an IRA or to switch from a brokerage account to an advisory account.
This is broader than many investors realize. The rule does not just govern a broker’s advice to buy a particular stock or bond. If a broker recommended moving your 401(k) into an IRA at their firm, recommended converting your account type, or recommended a strategy such as using margin or concentrating in one sector, each of those recommendations had to satisfy Reg BI.
The rule does not apply to trades a customer decides on and places entirely on their own. Unsolicited orders and routine account maintenance generally do not trigger a Reg BI duty, which is why reconstructing who recommended what, and when, is often the first step in evaluating a potential claim.
A retail customer under Reg BI is a natural person, or the legal representative of a natural person, who receives a securities recommendation and uses it primarily for personal, family, or household purposes. The protection covers everyday investors, retirees, and trusts or accounts representing individuals, regardless of the person’s wealth or investing experience.
There is no net worth cutoff. A high net worth investor with a large brokerage account is just as much a retail customer under the rule as a first-time investor, so long as the recommendation serves personal rather than commercial purposes.
Reg BI’s general obligation is satisfied only when the broker-dealer complies with four component obligations defined by the SEC: the Disclosure Obligation, the Care Obligation, the Conflict of Interest Obligation, and the Compliance Obligation. A failure on any one of the four can put a firm or broker in violation of the rule.
Understanding what each obligation requires helps an investor recognize whether their own broker actually met the standard. In our experience reviewing investor accounts, most viable Reg BI claims trace back to a breakdown in one or two of these components.
The Disclosure Obligation requires the broker-dealer to give the retail customer, before or at the time of the recommendation, full and fair written disclosure of the material facts about the relationship and the recommendation. That includes the capacity in which the firm is acting, the fees and costs the customer will pay, and material conflicts of interest.
One required disclosure is the customer relationship summary, Form CRS, which every broker-dealer must deliver to retail customers under a companion SEC rule. Form CRS describes in plain language whether the firm is acting as a broker-dealer or an investment adviser, how it charges, and what conflicts it has. If you never received these disclosures, or the disclosures did not match what your broker told you, that gap matters in a claim.
The Care Obligation requires the broker to exercise reasonable diligence, care, and skill when making a recommendation. The broker must understand the product well enough to know its risks, rewards, and costs, and must have a reasonable basis to believe the recommendation is in the best interest of that particular customer based on their investment profile.
The SEC has made clear that cost is always a relevant factor. A broker cannot ignore a comparable, lower-cost, or less risky alternative that was reasonably available at the time. A recommendation can violate the Care Obligation even when the product itself is legitimate, if it never fit the customer’s objectives, risk tolerance, liquidity needs, or time horizon.
The Conflict of Interest Obligation requires the brokerage firm to establish, maintain, and enforce written policies and procedures reasonably designed to identify and address conflicts of interest tied to its recommendations. Certain conflicts must be eliminated outright, including sales contests, quotas, and bonuses based on selling specific securities within a limited time.
Other conflicts, such as higher payouts on proprietary products or revenue-sharing arrangements with fund sponsors, must be disclosed and mitigated. When a firm’s incentive structure quietly pushed a broker toward the product that paid the most, and that product ended up in your account, the firm’s handling of that conflict becomes a central issue.
The Compliance Obligation requires the firm to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI as a whole. This obligation applies to the firm itself, not to the individual broker, and it is how regulators hold brokerage firms accountable for weak supervision.
A firm that never updated its compliance manual for Reg BI, never trained its brokers on a complex product, or set no limits on who could buy a speculative offering may be liable even where an individual broker claims they acted in good faith. Firm-level failures often become the strongest part of an investor’s case because they are documented in the firm’s own records.
Reg BI governs broker-dealers, while investment advisers are governed by the fiduciary standard under the Investment Advisers Act of 1940. The two standards are often confused because both use best-interest language, but they differ in when the duty applies, how the professional is paid, and where an investor’s claim is typically heard.
The distinction matters for recovery. Which standard applied to your account shapes what your legal claim looks like, what evidence proves it, and which forum will decide it.
Feature | Broker-Dealer Under Reg BI | Investment Adviser Under the Fiduciary Standard |
|---|---|---|
Governing authority | SEC Regulation Best Interest, Exchange Act Rule 15l-1 (effective June 30, 2020) | Investment Advisers Act of 1940 and SEC fiduciary interpretation |
When the duty applies | At the time of each recommendation | Continuously, throughout the advisory relationship |
Scope of the duty | Best interest of the retail customer for that recommendation, without placing the firm’s interest first | Ongoing duties of care and loyalty covering the entire relationship |
Typical compensation | Commissions and other transaction-based charges | Advisory fees, often a percentage of assets under management |
Conflict handling | Disclose and mitigate conflicts; certain sales contests and quotas are prohibited | Eliminate conflicts or make full and fair disclosure and obtain informed consent |
Required relationship disclosure | Form CRS plus Reg BI disclosures | Form ADV and Form CRS |
Monitoring duty | No general ongoing duty to monitor the account after the recommendation | Duty to provide advice and monitoring consistent with the agreed scope of the relationship |
Primary regulators | SEC and FINRA | SEC and state securities regulators |
Typical dispute forum | FINRA arbitration | Arbitration or state and federal court, depending on the agreement and registration |
Many financial professionals are dually registered, meaning they can act as a broker on some transactions and an adviser on others. The same person may owe you different duties on different trades. You can confirm how your professional is registered, and review their disciplinary history, through FINRA BrokerCheck.
If your losses came from a broker’s recommendation, your claim is usually built on Reg BI, FINRA’s rules, and related legal theories, and it will almost always proceed in FINRA arbitration. If your losses came from an investment adviser’s ongoing management, your claim is usually built on fiduciary duty principles, and the forum depends on your advisory agreement.
An experienced securities attorney sorts this out early because it determines the deadlines, the discovery available, and the decision-maker. KRP2’s attorneys have handled investor claims in FINRA arbitration, AAA arbitration, and state and federal courts, and can evaluate which path fits the facts of your account.
The conduct that most often violates Reg BI pairs a mismatch between the product and the customer’s actual profile with an incentive that favored the broker. Regulators and investor attorneys see the same patterns repeatedly: unsuitable product switches, overconcentration, excessive trading, and complex or illiquid products sold to conservative investors.
Patterns worth a closer look in your own account include:
No single pattern proves a violation by itself. A losing investment is not automatically a Reg BI violation either, because the rule judges the recommendation at the time it was made, not the outcome. What matters is whether the broker followed the process Reg BI requires, and the firm’s own records usually show whether that happened.
Reg BI claims most often involve complex, high-cost, or illiquid products, because those products carry the biggest gap between what the broker earned and what the customer understood. Variable annuities, non-traded REITs, structured notes, private placements, speculative bonds, and aggressive options strategies appear repeatedly in enforcement actions and investor arbitrations.
These products are not illegal, and some fit certain investors. The problem arises when a broker recommends them without understanding the risks, without weighing simpler alternatives, or to a customer whose profile called for something safer. The SEC has emphasized that complex and risky products demand more diligence from the broker, not less.
KRP2’s attorneys have handled investor claims involving many of these product types, including a recovery for an investor placed in an unsuitably risky derivative investment and claims involving complex options strategies. Prior results do not guarantee a similar outcome. If an unfamiliar product appeared in your account after a broker’s recommendation, the paperwork behind that recommendation deserves review.
The SEC and FINRA both bring enforcement actions against firms and brokers that violate Reg BI, and those actions have grown steadily since the rule took effect. Enforcement cases matter to individual investors because the findings and evidence they generate can support a private FINRA arbitration claim over the same conduct.
The SEC filed its first Reg BI action in federal court in June 2022, charging Western International Securities and five of its brokers over sales of speculative, illiquid GWG Holdings L Bonds to retail customers, including retirees with moderate to conservative risk tolerances. The SEC alleged the brokers violated the Care Obligation by recommending bonds they did not adequately understand, and that the firm violated the Compliance Obligation through outdated policies that set no limits on who could buy the product.
Large firms have faced Reg BI-related scrutiny as well. In October 2024, the SEC announced that two J.P. Morgan affiliates agreed to pay $151 million in combined civil penalties and voluntary payments to investors to resolve enforcement actions that included failures to make recommendations in customers’ best interest.
Fines and penalties in SEC and FINRA enforcement actions go to the government, not to the customers who lost money. An investor who wants to recover their own losses generally must pursue a separate claim, and for disputes with brokerage firms that almost always means FINRA arbitration.
A prior enforcement action against the same firm or broker can strengthen an individual claim considerably. Regulatory findings that a firm’s compliance systems failed, or that a product was sold indiscriminately, are exactly the kind of evidence arbitration panels weigh.
Reg BI does not give investors a private right to sue in federal court, so investors recover Reg BI-related losses primarily through FINRA arbitration against the brokerage firm and, in some cases, the individual broker. Arbitration claims routinely combine Reg BI with related theories such as unsuitability, misrepresentation, breach of fiduciary duty, and failure to supervise.
Building the case starts with the paper trail. Account statements, trade confirmations, new account forms, Form CRS and other disclosures, and emails or texts from the broker form the core evidence. SEC recordkeeping rules require broker-dealers to preserve records of the basis for their recommendations, and FINRA’s discovery process lets an investor’s attorney obtain the firm’s internal files, including compliance reviews and supervisory notes that customers never see.
Timing matters. FINRA’s eligibility rule generally requires arbitration claims to be filed within six years of the events at issue, and separate state and federal limitations periods can be shorter. Reviewing a questionable recommendation promptly preserves the most options.
A typical claim reconstructs three things: what the broker recommended, what the broker and firm knew or should have known at the time, and how the recommendation compared to your documented investment profile. Losses are then calculated against what a properly handled account would have looked like.
Arbitration panels award compensatory damages and can award interest, costs, and in egregious cases additional relief. Most investor claims resolve either through a negotiated settlement or a final arbitration award, and the process is significantly faster than court litigation.
KRP2 reviews account records, disclosures, and firm conduct to determine whether a Reg BI violation caused an investor’s losses, then pursues recovery through FINRA arbitration or litigation. The firm has represented thousands of individual and institutional investors in securities disputes across Florida, throughout the United States, and in Latin America since its founding in 2003.
Jeffrey B. Kaplan, a founding partner, focuses his practice on securities arbitration and litigation on behalf of investors. He served on FINRA’s National Arbitration and Mediation Committee at FINRA’s nomination, the advisory committee that drafts the rules and procedures governing FINRA arbitration, which gives the firm an insider’s understanding of the forum where Reg BI claims are decided. The firm’s partners have been recognized as Legal Elite by Florida Trend and as Top Lawyers by the South Florida Legal Guide every year since 2006.
Consultations are free, and investor cases are handled on a contingency fee basis. Prior results do not guarantee a similar outcome.
Is Regulation Best Interest a law?
Regulation Best Interest is a binding federal regulation adopted by the SEC under the Securities Exchange Act of 1934, codified as Rule 15l-1. It is enforceable against every registered broker-dealer in the United States, and violations can support both regulatory actions and investor arbitration claims.
When did Reg BI take effect?
The SEC adopted Regulation Best Interest in June 2019, and firms were required to comply beginning June 30, 2020. Recommendations made after that date are judged under Reg BI, while earlier recommendations are generally judged under the prior suitability standard and FINRA rules.
Can I sue my broker in court for a Reg BI violation?
Generally no. Reg BI does not create a private right of action in federal court. Investors typically recover losses tied to Reg BI violations through FINRA arbitration, where a violation of the rule supports claims against the brokerage firm and the individual broker.
How is Reg BI different from the old suitability rule?
The suitability rule asked whether a recommendation fit a customer’s general profile. Reg BI requires the broker to act in that specific customer’s best interest at the time of the recommendation, to weigh costs and reasonably available alternatives, and to avoid putting the firm’s interests first.
Does Reg BI apply to investment advisers?
No. Reg BI applies to broker-dealers and their registered representatives. Investment advisers owe clients a fiduciary duty under the Investment Advisers Act of 1940, an ongoing standard of loyalty and care that applies continuously rather than only at the moment of a recommendation.
Does Reg BI cover IRA rollover recommendations?
Yes. A broker’s recommendation to roll retirement plan assets into an IRA, or to move from one account type to another, is an account recommendation covered by Reg BI. The broker must have a reasonable basis to believe the rollover is in your best interest, including its costs.
Did Reg BI eliminate broker commissions and conflicts of interest?
No. Brokers may still earn commissions, and conflicts still exist. Reg BI requires firms to disclose and mitigate conflicts, and it prohibits certain high-pressure incentives such as sales contests and product-specific quotas, but it did not convert brokers into fee-only fiduciaries.
What should I do if I think my broker violated Reg BI?
Preserve your account statements, trade confirmations, disclosures, and any emails or texts with your broker, and avoid signing anything releasing the firm. Then have a securities attorney review whether the recommendation met Reg BI’s care and disclosure requirements and whether a FINRA arbitration claim makes sense.
A broker who failed to meet Reg BI’s requirements may be responsible for the losses that followed, regardless of how the market performed afterward. FINRA’s filing deadlines make early review important, and the documents that prove these claims are easiest to assemble while the account history is fresh.
Call KRP2 at 1.855.758.0653 or contact the firm online to schedule a free consultation with a securities arbitration attorney. The firm represents investors nationwide from its Miami headquarters on a contingency fee basis, so you pay no legal fees unless the firm recovers money for you.
Kaplan Rothstein Prüss Peraza, P.A. Grand Bay Plaza, 2665 S. Bayshore Drive, Penthouse 2B Miami, FL 33133 1.855.758.0653 |
This page is attorney advertising and provides general information about SEC Regulation Best Interest. It is not legal advice, and reading it does not create an attorney-client relationship. Prior results do not guarantee a similar outcome.
Byline: Written by Jeffrey B. Kaplan, Founding Partner, Kaplan Rothstein Prüss Peraza, P.A. Reviewed-by line: Reviewed by Jeffrey B. Kaplan, Securities Arbitration Attorney and former member of FINRA’s National Arbitration and Mediation Committee. Last updated August 21, 2026. Bio link: https://krp2.com/attorneys/jeffrey-b-kaplan/ |
Anchor text (location) | Target URL |
|---|---|
securities arbitration and litigation (intro, paragraph 3) | https://krp2.com/practice-area/investment-fraud-stockbroker-misconduct/ |
a pattern known as churning (violation patterns list) | https://krp2.com/practice-area/investment-fraud-stockbroker-misconduct/churning/ |
speculative bonds (violation patterns list) | https://krp2.com/practice-area/investment-fraud-stockbroker-misconduct/bonds/ |
Jeffrey B. Kaplan (How KRP2 Handles section, first mention) | https://krp2.com/attorneys/jeffrey-b-kaplan/ |
Miami headquarters (closing CTA) | https://krp2.com/practice-area/investment-fraud-stockbroker-misconduct/miami/ |
Pages that should link to this new page:
Anchor text | Target URL |
|---|---|
17 CFR § 240.15l-1 | https://www.law.cornell.edu/cfr/text/17/240.15l-1 |
Regulation Best Interest compliance guide | https://www.sec.gov/resources-small-businesses/small-business-compliance-guides/regulation-best-interest |
publishes its own guidance on the rule | https://www.finra.org/rules-guidance/key-topics/regulation-best-interest |
agreed to pay $151 million | https://www.sec.gov/newsroom/press-releases/2024-178 |
FINRA BrokerCheck | https://brokercheck.finra.org |
FINRA’s discovery process | https://www.finra.org/arbitration-mediation/code-arbitration-procedure |
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