Regulation Best Interest (Reg BI): What Accredited Investors Need to Know

Most accredited investors routinely encounter private credit funds, real estate syndications, and other alternative investments—yet very few fully understand the regulatory framework that governs how these opportunities are presented. Regulation Best Interest (“Reg BI”) is often discussed but rarely explained clearly. The important point is this: even for high‑net worth investors, Reg BI governs the recommendations you receive from broker‑dealers. Being accredited does not remove you from its protections or its requirements. If you are a natural person receiving investment recommendations for your personal portfolio, Reg BI applies.

Key Takeaways

• Reg BI applies to all natural persons, including accredited investors.

• It raises the standard for private placement and alternative investment recommendations.

• You should expect clear disclosures, documented rationale, consideration of alternatives, and conflicts management.

• The rule does not limit access to alternatives—it ensures that recommendations are aligned with your interests.

What Regulation Best Interest Really Is

Regulation Best Interest is the SEC’s modern standard of conduct for broker-dealers. It requires brokers to act in the best interest of the retail customer at the moment a recommendation is made. This standard applies to any securities recommendation, including account types, rollovers, private placements, and alternative investment strategies.

What differentiates Reg BI from older standards is its focus on the quality and integrity of the recommendation—not just whether the product fits a broad suitability profile. Brokers must evaluate the investment in relation to your needs, risks, costs, time horizon, liquidity requirements, and available alternatives. They must not place their financial incentives ahead of your interests.

Why Reg BI Was Implemented

For decades, broker-dealers operated under the suitability standard, which required that recommendations be “appropriate” but not necessarily optimal. Under suitability, a product could be recommended even if:

• A cheaper or simpler option existed.

• A less risky alternative would likely serve the investor better.

• The broker had compensation incentives tied to the sale.

The SEC introduced Reg BI to elevate this standard. While it does not transform broker-dealers into fiduciaries, it raises the required level of diligence, transparency, and conflict management. The goal is to ensure that personal recommendations align more directly with investor interests—especially important as more retail and accredited investors are offered complex, illiquid alternative investments.

The Four Core Obligations of Reg BI

Each obligation strengthens a different dimension of investor protection. Together, they create the best interest framework.

1. Disclosure Obligation

Before or at the moment of recommendation, broker-dealers must clearly disclose:

• Their capacity (acting as a broker, not an adviser unless dual registered).

• Fees, commissions, and total costs.

• Scope of services and any limitations.

• Any material conflicts of interest.

These disclosures must be understandable, written, and delivered prior to your investment decision. The rule also emphasizes that disclosure “alone” cannot satisfy Reg BI.

2. Care Obligation

This is the heart of the rule. Brokers must exercise reasonable diligence, care, and skill to:

• Understand the investment’s risks, rewards, and costs.

• Evaluate whether the investment is truly in your best interest.

• Consider your investment profile—including objectives, risk tolerance, liquidity needs, time horizon, financial situation, and experience.

• Assess reasonably available alternatives, not just the one being sold.

The care obligation especially impacts alternative investments, where liquidity constraints, fee structures, and risk profiles vary widely.

3. Conflict of Interest Obligation

Firms must create and enforce written policies that identify, disclose, mitigate, or remove conflicts that could influence product recommendations. These include:

• Compensation structures.

• Sales contests.

• Product specific incentives.

• Quotas or rewards tied to certain offerings.

Any incentive that could bias a recommendation must be neutralized or eliminated.

4. Compliance Obligation

Broker-dealers must maintain robust compliance systems that ensure:

• Policies are followed.

• Conflicts are controlled.

• Recommendations are documented.

• Records are retained.

Firms have to prove—not merely claim—that they are operating within a best interest framework.

Are Accredited Investors Considered “Retail Customers”?

Yes. Reg BI defines a retail customer as any natural person receiving recommendations for personal investment purposes. Accredited status does not change that. Unlike older FINRA frameworks that carved out certain “institutional” categories, Reg BI applies evenly to natural persons, regardless of wealth, sophistication, or portfolio size.

This is one of the most misunderstood aspects of the rule—and one of the most important for high net worth investors who are frequently exposed to private offerings.

How Reg BI Applies to Private Placements & Alternatives

Private placements—such as private credit funds, real estate syndications, hedge funds, and other alternatives—are directly in scope when recommended by a broker. Under Reg BI, firms must perform and evidence a deeper level of due diligence, including evaluation of:

• Issuer and management background.

• Business model viability and assumptions.

• Asset-level risks and financial projections.

• Fee structure and liquidity provisions.

• Use of proceeds.

• Regulatory or litigation history.

• Material changes during the offering period.

The broker must also evaluate how the investment fits your financial objectives and must compare the recommendation to reasonably available alternatives within the firm’s product universe.

This elevates the quality of recommendations in segments where complexity, illiquidity, and asymmetric information have historically challenged investor protection.

Common Misconceptions Among Accredited Investors

“Reg BI does not apply to me.”

If you are a natural person receiving a recommendation, it applies—regardless of whether you meet accredited investor thresholds.

“Reg BI restricts private placements.”

Reg BI does not restrict offerings—it raises the bar for how they’re recommended, ensuring they are thoroughly vetted and appropriate for your profile.

“Reg BI is a fiduciary rule.”

Reg BI is not the same as fiduciary duty under the Advisers Act. It incorporates similar principles but remains a distinct best interest based standard tailored for broker‑dealers.

“Reg BI forces brokers to recommend the cheapest product.”

Cost is important, but it’s not the only factor. A higher fee investment can be recommended if the rationale is sound and documented.

What You Should Expect Under Reg BI

Under the enhanced framework, accredited investors should now expect:

Clear, early, and written disclosures

You should understand fees, conflicts, services, and capacity before committing to any investment.

A documented, defensible rationale

Your broker should be able to articulate—ideally in writing—why the recommendation fits your specific investment profile.

Evidence of deeper due diligence

For private offerings, you should see, or be briefed on, credible diligence covering sponsor background, track records, risks, and cash flow assumptions.

Consideration of alternatives

Your broker should be able to explain why this investment is better suited for you than other available options.

Alignment with your personal profile

Liquidity, time horizon, risk tolerance, and financial situation must all factor into the recommendation.

Real World Examples

Example 1: Private Credit Fund

If you are presented with a private credit fund, Reg BI requires the broker to document the investment’s liquidity constraints, leverage, risk structure, and fee load. They must compare it to alternatives—like interval funds or BDCs—and articulate why this option fits your goals, income needs, and liquidity tolerance.

Example 2: Real Estate Syndication 506(b)

A long-term multifamily development syndication requires evaluation of the sponsor’s history, deal economics, stress‑testing assumptions, and liquidity limits. Your broker should connect these elements to your own risk profile, goals, and time horizon, while addressing viable alternatives like listed REITs or diversified real estate vehicles.

Conclusion

The more conferences I attend, the clearer it becomes: investment specifics are often communicated poorly to Registered Investment Advisers (RIAs) and direct investors. Too many recommendations are made without adequate explanation, documentation, or alignment with investor goals.

Regulation Best Interest was designed to change that — but it only works if both sides understand what “best interest” truly means. Broker‑dealers and RIAs must uphold a higher standard, and investors need to know exactly what they should be looking for.

That’s why we developed the framework below. It gives accredited investors a structured, repeatable way to evaluate recommendations, ask the right questions, and confirm that any fund—whether private credit, real estate, or another private placement—meets Reg BI expectations and aligns with their personal investment profile.

You should feel confident, informed, and in control of every recommendation you receive. This checklist will help you get there.

Frequently Asked Questions (FAQs)

Does Reg BI apply to accredited investors?

Yes. Being accredited does not exempt you if you are a natural person receiving recommendations.

Does Reg BI apply to private offerings?

Absolutely. Private placements and alternative investments fall directly within its scope.

Is Reg BI a fiduciary duty?

No. It borrows principles but remains a distinct best interest standard for broker‑dealers.

Does Reg BI restrict alternative investments?

No. It enhances the quality and integrity of recommendations but does not ban products.

What questions should I ask my broker?

Ask about total costs, alternatives considered, due diligence performed, liquidity expectations, and any conflicts of interest.

Additional Tools: Explore our Investor Resources Page for actionable guides, due diligence checklists, and the latest insights to help you make informed decisions.