The Four Core Components of Regulation Best Interest


Will you be ready to comply with Regulation Best Interest on June 30, 2020? The new rules and interpretations outline requirements instructing broker-dealers and investment advisors to not put their own financial interests ahead of the best interests of retail customers when making recommendations and to address conflicts of interest.

The four core component obligations of Regulation Best Interest are as follows:

Disclosure Obligation (Form CRS): Broker dealers and investment advisors must disclose in writing, before or at the time that advice is provided, that “all material facts about the scope and terms of [their] relationship” with its retail customers. These material facts would include the firm’s capacity as a broker-dealer (if applicable), fees incurred, scope of services, and conflicts of interest.

 Care Obligation: A broker dealer must have a “reasonable belief” that the recommendation is in the best interest of the customer, taking into account risks and rewards as well as the customer’s investment profile.

 Conflicts of Interest Obligation: Broker dealers must establish and implement policies and procedures reasonably designed to mitigate conflicts of interests that may incentivize associated persons to place the firm’s or their own interest ahead of the retail customer and to identify all such conflicts in order to disclose or eliminate them.

 Compliance Obligation: Broker dealers and investment advisors should establish and implement policies and procedures to comply with Regulation Best Interest “as a whole.”

For more about the implications and next steps for Broker Dealers and Investment Advisors, watch the on-demand webinar Understanding Regulation Best Interest and Form CRS featuring insight from Carl Seiler, JD, Managing Director of Blue River Partners.

And if you're looking for compliance solutions to help your organization manage conflicts of interest and risk, learn more about how MyComplianceOffice can help.