Series 7 practice questionhardCustomer Profiles — Reg BI
Under SEC Regulation Best Interest (Reg BI), which of the following obligations does a broker-dealer owe to a retail customer when making a recommendation?
- AThe broker-dealer must act as a fiduciary identical to an investment adviser
- BThe broker-dealer must act in the best interest of the retail customer at the time the recommendation is made, without placing its own interests ahead of the customer's✓ Correct answer
- CThe broker-dealer must guarantee that the recommended investment will be profitable
- DThe broker-dealer must charge the lowest possible commission in the industry
Explanation
Why B — The broker-dealer must act in the best interest of the retail customer at the time the recommendation is made, without placing its own interests ahead of the customer's
SEC Regulation Best Interest (Reg BI), effective June 2020, requires broker-dealers to act in the best interest of retail customers when making recommendations, without placing their own financial or other interests ahead of the customer's. Reg BI includes four component obligations: Disclosure, Care, Conflict of Interest, and Compliance. While it raises the standard above traditional suitability, it does not impose the same fiduciary standard as applies to investment advisers under the Investment Advisers Act of 1940.
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