As we approach the one-year anniversary of the Texas State Securities Board’s adoption of SEC Regulation Best Interest (Reg BI), it’s an ideal time to revisit what this rule actually requires—and why it matters so much to investors.
On March 13, 2025, the Texas State Securities Board (TSSB) adopted Rule §115.24, formally incorporating the SEC’s Regulation Best Interest into Texas law. The rule applies to broker-dealers and their registered representatives and also adopts related fair practice and ethical standards issued by the SEC, FINRA, the CFTC, and other approved self-regulatory organizations. Alongside this change, Texas strengthened dealer recordkeeping requirements to ensure firms can verify compliance.
The takeaway is simple but powerful: brokers must put investors first.
The Four Core Obligations Under Reg BI
Reg BI establishes four key obligations that govern how brokers interact with customers:
- Disclosure Obligation
- Care Obligation
- Conflict-of-Interest Obligation
- Compliance Obligation
Each plays a critical role in protecting investors.
1. Disclosure Obligation: No More Hiding the Ball
When a broker or registered representative presents an investment to a client or prospective client, they must disclose all material information—not just the attractive parts.
Historically, sales presentations often highlighted potential returns in bold graphics while relegating risks to fine print or footnotes, if they were mentioned at all. Reg BI changes that standard. Investors must be provided with both the benefits and the risks of an investment so they can make a truly informed decision.
If the information is known, it must be shared—plain and simple.
2. Care Obligation: “Know Your Customer” on Steroids
Technology and artificial intelligence can assist with analysis, but they cannot replace human judgment. Under Reg BI, firms and their representatives must carefully evaluate each client’s individual circumstances before making recommendations.
This means paying attention to red flags and life changes, such as:
- A senior citizen who suddenly begins withdrawing large sums from an IRA and wiring money overseas.
- A client who has been laid off and may need increased liquidity.
- Changes in health, income, or retirement timing that affect risk tolerance.
In these situations, a broker should ask questions, reassess objectives, and adjust strategies when appropriate—even temporarily.
At its core, the Care Obligation requires brokers to place the client’s interests ahead of their own or their firm’s financial incentives.
3. Conflict-of-Interest Obligation: What You Don’t See Can Hurt You
Conflicts of interest are often the least visible—but potentially the most damaging—aspect of a broker-client relationship.
Conflicts can arise from many sources, including:
- Firm-sponsored products
- Sales contests or incentive programs
- Compensation structures that reward certain recommendations
Under Reg BI, brokers must disclose and address anything that could reasonably influence their recommendation. In practice, this obligation overlaps heavily with the Disclosure and Care obligations: investors deserve to know when something other than their best interest may be influencing advice.
4. Compliance Obligation: Oversight That Matters
Reg BI also places significant responsibility on brokerage firms themselves. Every transaction and recommendation is subject to supervisory review.
Compliance officers are tasked with:
- Monitoring suitability and legality
- Catching and correcting unintentional errors
- Investigating possible Reg BI violations
- Taking remedial action to protect affected clients
- Sanctioning representatives when necessary
While most representatives act honestly, this oversight is designed to ensure that mistakes—and misconduct—are addressed before investors suffer lasting harm.
Why Reg BI Matters
Reg BI represents one of the strongest and broadest sets of duties ever imposed on brokerage firms and their representatives. When followed, it gives investors meaningful protection. When ignored, it provides a clear framework for accountability.
If a broker places you—or a family member—into investments that don’t align with your risk tolerance, retirement goals, or financial needs, that may be a violation of Reg BI.
The Forman Law Firm, P.C. has a proven record of successfully representing investors harmed by brokerage firms and investment advisors who have violated rules or responsibilities. If you believe you or a family member have had a broker recommend investments that didn’t match your risk tolerance or retirement goals or otherwise did not act in your best interest, contact our firm through its website https://www.formanlawfirm.com/ or by phone at 512-306-8188 to discuss your situation.