Reg BI Care Obligation - Costs, Alternatives, and Differences between Best Interest and Suitability

The Obligation of Care in Reg BI is very important, and really separates Best Interest from Suitability. We’ll cover the basics in this video.

In making a recommendation under Reg BI, you need to exercise reasonable diligence, care, and skill in:

- Understanding the risks, rewards, and costs associated with a recommendation.

- Having a reasonable basis to believe the recommendation is in the best interest of a particular retail customer based on that retail customer’s investment profile.

- Having a reasonable basis to believe that a series of recommended transaction, even if in the retail customer’s best interest when viewed in isolation, is not excessive and is in the retail customer’s best interest when taken together in light of the retail customer’s investment profile.

Reg BI vs Suitability:

- Reg BI explicitly requires the recommendation be in the customer’s best interest

- Reg BI explicitly requires that cost be a consideration

- Reg BI requires the consideration of reasonably available alternatives

Disclosure of the process of developing recommendations is of fundamental importance to a retail customer’s understand of the services being provided.

Whether or not you complied with the Care Obligation will focus on whether the broker-dealer had a reasonable basis to believe that the recommendation was in the best interest of the retail customer.

This is neither legal nor financial advice. It is solely my opinion and interpretation of Reg BI.

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