Regulation Best Interest (BI)

What Is Regulation Best Interest (BI)?

​When applying for life insurance, the SEC has enacted Regulation 189, aka Reg 189,  "Best Interest: The Broker-Dealer Standard of Conduct"

Regulation Best Interest (BI) is a 2019 Securities and Exchange Commission (SEC) rule that requires broker-dealers to only recommend financial products to their customers that are in their customers best interests, and to clearly identify any potential conflicts of interest and financial incentives the broker-dealer may have with those products.

The Regulation BI rule falls under the Securities and Exchange Act of 1934 and establishes a standard of conduct for broker-dealers when recommending any securities transaction or investment strategy.

SUMMARY

• Regulation Best Interest (BI) is a SEC regulation that attempts to improve safeguards for investors and standardize conduct of broker-dealers and financial advisors.
• Similar to the proposed fiduciary rule, BI states that financial professionals make investment recommendations that serve the client first and foremost.
• Previously, brokers were only held to the “suitability standard.” This meant that when brokers advised their clients, they only had to recommend investments that were suitable, but not necessarily in their clients' best interest.

​Background

Regulation BI was approved by the SEC in a 3 to 1 vote on June 5, 2019. The regulation was first proposed on April 18, 2018, and the SEC collected comments and held hearings on the proposal for the following five months. In a press release issued by the SEC, the Commission said, "Regulation Best Interest will enhance the broker-dealer standard of conduct beyond existing suitability obligations and make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer when making recommendations."

Broker-dealers responsibilities have shifted over the past two decades from simply executing clients' trades for stocks and other securities to providing broader investment advice. Unlike financial advisors, who act as fiduciaries for their clients, broker-dealers were not required to disclose potential conflicts of interest when recommending investing products or strategies.

The full regulation is available for review here.

Click below to access the downloadable Suitability Form:

download The Form here