SKILL.md
SEC Regulation Best Interest (Reg BI)
Regulatory status current as of June 2026 — verify effective dates, dollar thresholds, and pending rulemakings against current SEC/FINRA/FinCEN sources before advising.
Core Concepts
What Constitutes a "Recommendation" Under Reg BI
Reg BI applies whenever a broker-dealer or associated person makes a "recommendation" to a "retail customer" of any securities transaction or investment strategy involving securities, including account type recommendations. The SEC adopted the existing FINRA framework for what constitutes a recommendation but expanded its scope:
- Explicit recommendations: "You should buy X" or "I recommend allocating to Y."
- Account type recommendations: Recommending a brokerage account vs an advisory account, or a specific account type (margin, options-enabled, fee-based).
- Implicit hold recommendations: Agreeing with a customer's decision to continue holding a security when the associated person has a duty to monitor or review the account.
- Rollover recommendations: Advising a customer to roll assets from an employer plan (401(k), 403(b), pension) to an IRA. The SEC has specifically identified rollovers as triggering Reg BI (see SEC Staff Bulletin on Account Recommendations, 2022).
- Investment strategy recommendations: Recommending a strategy involving securities, such as a particular asset allocation, use of leverage, or concentration approach.
The "facts and circumstances" test considers whether the communication could reasonably be viewed as a suggestion to act. General education, broad asset allocation models without a specific recommendation, and responses to unsolicited orders generally do not trigger Reg BI.
Disclosure Obligation (17 CFR 240.15l-1(a)(2)(i))
Before or at the time of a recommendation, the broker-dealer must provide the retail customer with full and fair disclosure of all material facts relating to the scope and terms of the relationship, including: