Earlier this month, the Securities and Exchange Commission filed its first-ever civil lawsuit seeking to enforce Regulation Best Interest. The case, filed in a federal district court in California, seeks permanent injunctions, disgorgement with prejudgment interest and civil penalties against broker-dealer Western International Securities Inc. and five of its registered representatives. Regulation Best Interest, also known as “Reg BI,” became effective in mid-2020, requiring broker-dealers and their associated persons to act in the best interest of their retail clients when making recommendations.
Reg BI does not apply to registered investment advisers, but, at the time of its adoption in 2019, the SEC issued guidance in which it affirmed and substantially clarified its view of what investment advisers must do to comply with their fiduciary obligations to their clients. Among those obligations is to act in the client’s best interests at all times. Both broker-dealers and investment advisers are required to deliver Client Relationship Summaries to their clients and prospective clients at various times. This document, among other things, describes conflicts of interests the firm has relating to the services it provides or the fees it receives.