The best interest standard is the conduct standard established by Regulation Best Interest (Reg BI), effective June 30, 2020, that requires broker-dealers to act in the best interest of retail customers when making recommendations about securities or investment strategies.
How it differs from suitability: - Suitability: Was the recommendation appropriate for the customer? (The broker could choose the product most profitable for themselves as long as it met the customer's needs.) - Best interest: Does the recommendation genuinely serve the customer's interests best? Brokers must consider costs and available alternatives; cannot let their own financial interests drive the recommendation.
Four obligations of Reg BI (summary): 1. Disclosure — disclose material facts, conflicts, and the nature of the relationship. 2. Care — exercise reasonable diligence, care, and skill; have a reasonable basis that the recommendation is in the customer's best interest. 3. Conflict of interest mitigation — identify and manage conflicts; cannot recommend products that pay the broker more just because they pay more. 4. Compliance — policies and procedures to achieve Reg BI compliance.
Best interest ≠ fiduciary: - Reg BI's best interest standard applies at the time of recommendation (transactional). - The investment adviser fiduciary duty is ongoing — an RIA must always act in the client's interest.
Form CRS: Broker-dealers must deliver a 2-page Client Relationship Summary explaining services, fees, and conflicts in plain English.
> Exam tip: Reg BI is higher than the old suitability standard but lower than the RIA fiduciary standard. The key improvement: brokers can no longer put their own financial interest ahead of the client's when there are equally suitable alternatives. Tested on SIE, Series 7, Series 65/66.