designer491/ Getty Images

What you Need to Know About Reg BI

Share This

We all know that Regulation Best Interest (or Reg BI) will have a major impact on the financial industry. But how and when? Our at-a-glance primer below can serve as your guide.

Reg BI is the best-known part of a new investment rules package created by the U.S. Securities and Exchange Commission (SEC). With the rules, the SEC hopes to protect investor choice, both in advisor relationships and in investment products. The basic requirement: that with their recommendations, advisors and broker-dealers act in clients’ best interests. While that reflects how many advisors work already, the details are complicated, and the new rules strengthen requirements that each broker-dealer “not put its financial interests ahead of the interests of a retail customer when making recommendations.”


In 2018, the SEC proposed a package of four rule makings (the Rule Package) and then, after receiving more than 6,000 comments, approved the final rule in June. It is intended to enhance the transparency and quality of a retail investors’ relationship with broker-dealers (commission-based business) and investment advisors (fee-based business).

SIFMA provides details here and our summary continues below.

Of note: While the SEC moves forward with Reg BI, New Jersey and Massachusetts have their own proposed fiduciary rules, and Nevada has already passed a law. There are differences between each of these state-level rules, and the SEC has said they will pass on a federal pre-emption of these rules. The Department of Labor is preparing to put forward another fiduciary standard for ERISA (Employee Retirement Income Security Act) accounts.


  1. BEST INTEREST REGULATION: Implementation by 6/30/2020

The Best Interest Regulation establishes a standard of conduct for Broker-Dealers (BD) and Registered Investment Advisors (RIA) when making a recommendation of any account type, securities transaction, or investment strategy involving a retail client or prospect. The BD/RIA must act in the best interest of the retail client at the time a recommendation is made without placing their interests ahead of the retail client or prospect. A retail client is defined as a natural person, which the SEC recognized is different from FINRA’s definition of a retail client. There are four primary obligations that comprise “best interest:”

  1. Disclosure
  2. Care
  3. Conflicts of interest
  4. Compliance
  1. CLIENT RELATIONSHIP SUMMARY (CRS): Implementation by 6/30/2020

The Client Relationship Summary, or form CRS, is designed to provide retail clients and prospects with a summary of the relationship types and services the firm offers. In some ways it is an expansion of a document already available through most investment firms that explains brokerage and investment advisory relationships. It requires disclosure of the following:

  • Standards of conduct
  • Fees and costs of services
  • Conflicts of interest
  • Any reportable legal or disciplinary events

The form CRS is limited to four pages for dual-registrants such as D.A. Davidson, and must be written in plain English that avoids the use of industry jargon. In practice, it must be delivered to each new or prospective retail client before or at the time of any recommendation including account or relationship type, security, or investment strategy.

  1. INTERPRETATION OF INVESTMENT ADVISER STANDARDS (RIAs): Immediately effective following posting in Federal Register

The Interpretation of Investment Adviser Standards clarifies the standard of care applicable to RIAs, and reaffirms aspects of the Fiduciary Duty that a RIA owes to clients under the Advisers Act. It is centered on four tenets:

  1. Duty of care
  2. Duty to seek best execution
  3. Duty to act and provide advice and monitoring over the course of the relationship
  4. Duty of loyalty
  1. SOLELY INCIDENTAL INTERPRETATION: Immediately effective following posting in Federal Register

The Solely Incidental Interpretation delineates when a BD’s or RIA’s performance of advisory activities causes it to become an Investment Adviser (subject to registration and related regulations). In practical terms, this would occur when exercising discretion and/or entering into an agreement to provide ongoing monitoring on a periodic basis or at specific timeframes.


  1. Documentation of best interest advice is central to Reg BI, and (unlike the DOL’s Fiduciary Rule) it applies to ALL account types. Ensure that CRM documentation of all recommendations is a systematic and a consistent part of your practice, including what type of account to recommend (e.g., commission-based or fee-based).
  2. Review your account documents to ensure client profiles are both current and in alignment. Misaligned investment objectives and risk tolerance (e.g., aggressive growth/conservative) can be an opportunity to clarify/update client expectations and therefore position yourself and your team to deliver advice that is in the client’s best interest.
  3. Give careful consideration to the account type and client profile when recommending mutual funds, UITs, Syndicate and other products that generally involve higher cost to the client and, of course, document the “WHY” in your CRM so that there is a clear paper trail.


At D.A. Davidson, we have established a core project team to review the Rule Package and potential impacts on business and processes. . While we believe that much of the groundwork that was laid in preparation for the DOL’s Fiduciary Rule will be additive in our implementation of Reg BI, there are several key differences and new elements to consider. We are committed to providing our advisors with the tools and training that each will need well ahead of the 2020 deadline to execute Reg BI.

D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2018. All rights reserved. Member SIPC.

Share This
Comments (1)
  • • Helps Support Suitability and Best Interest Requirements – the powerful CRM system documents and stores your analysis, allowing you to “show your work” and protect your practice

Leave a Reply