With the foundation of compensation types and fairness standards in place, Reg BI represents the overarching standard that governs how broker-dealers must act when making recommendations to retail customers. For the Series 63, what matters is the standard itself and how NASAA has made it enforceable at the state level.
Overview and Applicability
- Reg BI applies to broker-dealers and their associated persons when making a recommendation to a retail customer
- A retail customer is a natural person (or their legal representative) using the recommendation for personal, family, or household purposes
- Reg BI requires that broker-dealers act in the best interest of the retail customer at the time a recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the customer's interest
Exam Tip: Gotchas
Reg BI applies only to broker-dealers and their associated persons. It does not apply to investment advisers, who are held to a separate fiduciary standard. Do not confuse the two standards on the exam.
Why It Matters for the Series 63: NASAA Incorporation
- NASAA's Statement of Policy on Dishonest or Unethical Business Practices incorporates Reg BI at the state level (amendments adopted in 2025)
- The statement specifically provides that it is a dishonest practice to fail to comply with Regulation Best Interest when making recommendations to retail customers
- This makes Reg BI compliance enforceable as a state law obligation in jurisdictions that have adopted the NASAA statement
- Violations can trigger both federal and state enforcement action
Exam Tip: Gotchas
- Reg BI applies to broker-dealers only. Investment advisers have a separate fiduciary standard.
- NASAA has adopted Reg BI, making it testable as both a federal and state requirement.