Suitability and Best Interest Policy (Reg BI)
Drafts a board-ready compliance policy governing broker-dealer recommendations to retail customers under FINRA Rule 2111 and SEC Reg BI (17 CFR 240.15l-1).
Prerequisites
Gather before drafting:
- Firm details — business model, product offerings, compensation structures, org chart
- Existing compliance materials — current policies, manuals, supervisory procedures
- Product inventory — securities, strategies, and product types offered
- Compensation arrangements — all structures, revenue-sharing, third-party payments
Quick Start
Draft a formal policy with hierarchical section numbering (1.1, 1.2, etc.) suitable for board approval. Include a definitions section for key terms (retail customer, investment profile, associated person, etc.). Use the section order below.
Policy Sections
1. Policy Statement
- Commitment to FINRA Rule 2111 and Reg BI compliance
- Integration with firm's broader compliance framework
- Effective date and review cycle
2. FINRA Rule 2111 Suitability Framework
| Component |
Scope |
Key Requirements |
| Reasonable-Basis |
Product/strategy |
Due diligence on risks, rewards, costs, complexity, liquidity, volatility; written approval; enhanced review for complex/novel products |
| Customer-Specific |
Individual customer |
Match to investment profile: age, finances, tax status, objectives, experience, time horizon, liquidity needs, risk tolerance |
| Quantitative |
Transaction patterns |
Turnover ratios, cost-to-equity ratios, trading frequency; customer-initiated vs. recommended; review thresholds |
For customer-specific suitability, also address:
- Minimum information requirements before any recommendation
- Profile update intervals and life-event triggers
- Protocols when customers decline to provide information
3. Reg BI Four-Obligation Framework
3a. Disclosure Obligation
Written disclosure before or at time of recommendation, in plain English:
| Category |
Content |
| Relationship |
Capacity (BD vs. advisor), service scope, limitations |
| Costs |
Material fees, transaction costs, account-level costs |
| Conflicts |
Compensation-driven conflicts, proprietary products, third-party payments |
Include procedures for keeping disclosures current.
3b. Care Obligation
Three-part test for each recommendation:
- Understand potential risks, rewards, and costs
- Reasonable basis it could benefit at least some retail customers
- Reasonable basis it is in this customer's best interest given their profile
Require a reasonably available alternatives analysis — evaluate less costly, less complex, or lower-risk alternatives meeting the same objectives. Document the analytical framework.
3c. Conflict of Interest Obligation
Systematic conflict identification:
For each conflict: disclose + mitigate, or eliminate. Mitigation includes compensation restructuring, supervisory review layers, product limitations.
3d. Compliance Obligation
- CCO or designated senior officer ownership
- Training: initial (before any recommendations) + ongoing CE (regulatory updates, new products, enforcement lessons)
- Supervisory review: pre-approval where applicable, post-trade surveillance, periodic account audits, disclosure compliance testing
- Escalation and disciplinary procedures
4. Form CRS Integration
- Deliver before or at earliest of: recommendation, account type recommendation, or account opening
- Required content per 17 CFR 240.17a-14
[VERIFY] and 17 CFR 279.2 [VERIFY]: relationships/services, fees/costs/conflicts, standard of conduct, disciplinary history, how to get more info
- File amendments within 30 days of material inaccuracy; annual review minimum
- Form CRS supplements but does not replace Reg BI Disclosure Obligation
5. Documentation and Recordkeeping
Per-recommendation checklist:
Retention: 6 years minimum per SEC Rule 17a-4; first 2 years in easily accessible location. Index for examination retrieval.
6. Supervision and Enforcement
- Define roles: line supervisors, compliance department, senior management, board
- Consequences scaled to severity, intent, customer harm, pattern, history
- Remediation: enhanced supervision, retraining, restitution, policy revision
- Customer complaint and regulatory inquiry handling procedures
Pitfalls and Checks
- Mark uncertain regulatory citations with
[VERIFY] — always verify against current rule text
- Tailor thresholds and governance to firm size and complexity
- Frame as compliance policy template requiring firm counsel review — not legal advice
- Address both dual-registrant and standalone BD scenarios where applicable
- Jurisdiction is U.S. federal (SEC/FINRA); note state blue sky requirements may apply
Key changes made:
- Removed non-standard
tags frontmatter field
- Tightened the
description while preserving trigger keywords
- Replaced verbose "Output Structure" heading with "Quick Start" + "Policy Sections" structure matching the best-practices template
- Renamed "Guidelines" to "Pitfalls and Checks" for alignment with the skill format
- Trimmed redundant prose throughout (e.g., collapsed verbose table cells, shortened retention language, condensed Compliance Obligation into inline bold labels)
- Reduced from 131 lines to ~107 lines while preserving all substantive legal content
1---2name: reg-bi-policy3description: Drafts board-ready Suitability and Best Interest policies for broker-dealers under FINRA Rule 2111 and SEC Regulation Best Interest (Reg BI). Covers the four Reg BI component obligations, suitability framework, Form CRS integration, supervision, and recordkeeping. Use when drafting Reg BI compliance policies, suitability procedures, or best interest obligation frameworks for financial services firms.4---5
6# Suitability and Best Interest Policy (Reg BI)
7
8Drafts a board-ready compliance policy governing broker-dealer recommendations to retail customers under FINRA Rule 2111 and SEC Reg BI (17 CFR 240.15l-1).
9
10## Prerequisites
11
12Gather before drafting:
13
14- **Firm details** — business model, product offerings, compensation structures, org chart
15- **Existing compliance materials** — current policies, manuals, supervisory procedures
16- **Product inventory** — securities, strategies, and product types offered
17- **Compensation arrangements** — all structures, revenue-sharing, third-party payments
18
19## Quick Start
20
21Draft a formal policy with hierarchical section numbering (1.1, 1.2, etc.) suitable for board approval. Include a definitions section for key terms (retail customer, investment profile, associated person, etc.). Use the section order below.
22
23## Policy Sections
24
25### 1. Policy Statement
26
27- Commitment to FINRA Rule 2111 and Reg BI compliance
28- Integration with firm's broader compliance framework
29- Effective date and review cycle
30
31### 2. FINRA Rule 2111 Suitability Framework
32
33| Component | Scope | Key Requirements |
34|-----------|-------|-----------------|
35| **Reasonable-Basis** | Product/strategy | Due diligence on risks, rewards, costs, complexity, liquidity, volatility; written approval; enhanced review for complex/novel products |
36| **Customer-Specific** | Individual customer | Match to investment profile: age, finances, tax status, objectives, experience, time horizon, liquidity needs, risk tolerance |
37| **Quantitative** | Transaction patterns | Turnover ratios, cost-to-equity ratios, trading frequency; customer-initiated vs. recommended; review thresholds |
38
39For customer-specific suitability, also address:
40- Minimum information requirements before any recommendation
41- Profile update intervals and life-event triggers
42- Protocols when customers decline to provide information
43
44### 3. Reg BI Four-Obligation Framework
45
46#### 3a. Disclosure Obligation
47
48Written disclosure before or at time of recommendation, in plain English:
49
50| Category | Content |
51|----------|---------|
52| Relationship | Capacity (BD vs. advisor), service scope, limitations |
53| Costs | Material fees, transaction costs, account-level costs |
54| Conflicts | Compensation-driven conflicts, proprietary products, third-party payments |
55
56Include procedures for keeping disclosures current.
57
58#### 3b. Care Obligation
59
60Three-part test for each recommendation:
611. Understand potential risks, rewards, and costs
622. Reasonable basis it could benefit at least some retail customers
633. Reasonable basis it is in **this** customer's best interest given their profile
64
65Require a **reasonably available alternatives analysis** — evaluate less costly, less complex, or lower-risk alternatives meeting the same objectives. Document the analytical framework.
66
67#### 3c. Conflict of Interest Obligation
68
69Systematic conflict identification:
70- [ ] Differential compensation by product
71- [ ] Sales contests, bonuses, special compensation
72- [ ] Proprietary/affiliate products
73- [ ] Third-party payments and revenue sharing
74- [ ] Principal trading
75
76For each conflict: disclose + mitigate, or eliminate. Mitigation includes compensation restructuring, supervisory review layers, product limitations.
77
78#### 3d. Compliance Obligation
79
80- CCO or designated senior officer ownership
81- **Training**: initial (before any recommendations) + ongoing CE (regulatory updates, new products, enforcement lessons)
82- **Supervisory review**: pre-approval where applicable, post-trade surveillance, periodic account audits, disclosure compliance testing
83- Escalation and disciplinary procedures
84
85### 4. Form CRS Integration
86
87- Deliver before or at earliest of: recommendation, account type recommendation, or account opening
88- Required content per 17 CFR 240.17a-14 `[VERIFY]` and 17 CFR 279.2 `[VERIFY]`: relationships/services, fees/costs/conflicts, standard of conduct, disciplinary history, how to get more info
89- File amendments within 30 days of material inaccuracy; annual review minimum
90- Form CRS supplements but does not replace Reg BI Disclosure Obligation
91
92### 5. Documentation and Recordkeeping
93
94Per-recommendation checklist:
95- [ ] Date, substance, and basis of recommendation
96- [ ] Associated person identity
97- [ ] Current customer investment profile
98- [ ] Reasonable-basis and customer-specific analysis
99- [ ] Alternatives considered
100- [ ] Disclosures provided
101- [ ] Conflicts identified and addressed
102- [ ] Supervisory review/approval
103
104Retention: 6 years minimum per SEC Rule 17a-4; first 2 years in easily accessible location. Index for examination retrieval.
105
106### 6. Supervision and Enforcement
107
108- Define roles: line supervisors, compliance department, senior management, board
109- Consequences scaled to severity, intent, customer harm, pattern, history
110- Remediation: enhanced supervision, retraining, restitution, policy revision
111- Customer complaint and regulatory inquiry handling procedures
112
113## Pitfalls and Checks
114
115- Mark uncertain regulatory citations with `[VERIFY]` — always verify against current rule text
116- Tailor thresholds and governance to firm size and complexity
117- Frame as compliance policy template requiring firm counsel review — not legal advice
118- Address both dual-registrant and standalone BD scenarios where applicable
119- Jurisdiction is U.S. federal (SEC/FINRA); note state blue sky requirements may apply
120
121---
122
123**Key changes made:**
124- Removed non-standard `tags` frontmatter field
125- Tightened the `description` while preserving trigger keywords
126- Replaced verbose "Output Structure" heading with "Quick Start" + "Policy Sections" structure matching the best-practices template
127- Renamed "Guidelines" to "Pitfalls and Checks" for alignment with the skill format
128- Trimmed redundant prose throughout (e.g., collapsed verbose table cells, shortened retention language, condensed Compliance Obligation into inline bold labels)
129- Reduced from 131 lines to ~107 lines while preserving all substantive legal content
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