Regulation Best Interest became effective on June 30, 2020, and the Securities and Exchange Commission's enforcement program has moved from an initial grace period into active enforcement. The pattern of enforcement actions, examination findings, and SEC staff guidance issued since 2020 reveals a set of recurring compliance failures — and signals a sharpened enforcement posture heading into 2025.
The Care Obligation: Where Firms Are Falling Short
The care obligation under Rule 15l-1 requires broker-dealers to exercise reasonable diligence, care, and skill in making recommendations, and to recommend only those securities that are in the retail customer's best interest. SEC examination findings and enforcement actions reveal several recurring failure modes: recommending higher-cost share classes of mutual funds when lower-cost alternatives are available and suitable; recommending variable annuity exchanges without documented analysis of surrender charges and tax consequences; and recommending complex products to retail customers without documented basis for concluding that the product is in the customer's best interest given their investment profile. In each case, the problem is not the recommendation itself — it is the absence of documented analysis.
The Conflict of Interest Obligation
The conflict of interest obligation requires broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to identify and disclose conflicts of interest associated with recommendations, and to mitigate conflicts that create an incentive to place the firm's interests ahead of the retail customer's interests. The SEC's examination findings reveal that many firms have identified conflicts — in revenue sharing arrangements, sales contests, and differential compensation schedules — but have treated disclosure as a substitute for mitigation. The SEC has been explicit: disclosure alone does not satisfy the mitigation requirement where the conflict creates a direct incentive to recommend against the customer's best interest.
Form CRS Deficiencies
Form CRS has been one of the most consistently cited areas of SEC examination findings since its implementation in 2020. Common deficiencies include: using language copied from another firm's CRS rather than accurately describing the registrant's own services and fees; failing to include required disclosures about the firm's legal and disciplinary history; and failing to update Form CRS following material changes to the firm's business. The SEC has also taken issue with formatting choices that obscure required disclosures, including font size reductions and the burial of key information in footnotes.
What 2025 Signals
The SEC's enforcement trajectory for Reg BI in 2025 points toward several high-priority areas. Rollover recommendations — particularly recommendations to roll retirement assets from ERISA plans into IRA accounts managed by the recommending broker-dealer — have been explicitly identified as a Reg BI enforcement focus. The conflict of interest embedded in rollover recommendations is direct and substantial, and the SEC has indicated that documentation of the care obligation analysis for rollover recommendations will be a primary examination focus. AI-assisted investment recommendations present an emerging regulatory frontier: the SEC has signaled interest in how broker-dealers are applying Reg BI's care obligation to recommendations generated or supported by algorithmic tools.
What Firms Should Do Now
The pattern of Reg BI enforcement findings points to several concrete remediation priorities. First, audit your care obligation documentation procedures — not the written policies, but the actual documentation being generated at the point of recommendation. Second, review your conflict of interest inventory and honestly evaluate whether mitigation measures are adequate or whether disclosure is being used as a substitute for mitigation. Third, review your Form CRS for accuracy, completeness, and currency — and establish a process for monitoring material changes that trigger an amendment obligation.