For too long, “best interest” has been a phrase that sounded good in policy manuals but lacked operational teeth. That era is now over.
What began as a principles-based initiative under Reg BI has matured into an enforcement framework – one where regulators are no longer looking for internal policies. They’re looking for proof. Increasingly, that proof needs to go beyond form filings and disclosure language. It needs to show process, intent, and discipline.
And unless firms can demonstrate all three, the consequences are no longer hypothetical.
The Scrutiny Has Shifted, Have You?
Early enforcement cases under Reg BI were low-hanging fruit. Firms that didn’t file Form CRS. Firms with no written policies and procedures. But those days are gone. Today’s scrutiny is more sophisticated – and more alarming.
Recent enforcement trends show that FINRA and the SEC are now laser-focused on account type recommendations, rollovers, complex products, and failure to evaluate costs and reasonably available alternatives. These aren’t administrative oversights. These are decisions that directly impact investor outcomes and advisor incentives—and they’re being examined as such.
Firms are being asked:
- Why was an investor moved from brokerage to advisory accounts?
- Why was a higher-cost product recommended when a cheaper clone ETF existed?
- Where is the documentation that this decision benefited the client?
If those questions don’t have fast, credible, and data-backed answers, the fallout isn’t a warning—it’s enforcement.
The Myth of “Disclosure as a Defense”
Some firms were caught believing that disclosure alone would save them. It won’t. The SEC has been clear: disclosure does not neutralize a poor recommendation. Nor does it absolve a firm of its duty to consider less costly, less complex, or better-aligned alternatives.
What’s needed is not just transparency – but justification.
This means:
- Conducting and documenting product-level analysis
- Demonstrating how fees relate to value
- Aligning client profiles with account strategies—and being able to prove it
Put simply: the “why” behind the recommendation matters more than ever.
Supervision Needs to Operate at Scale
Firms need to supervise like regulators. But they also need to do it without creating friction for advisors or bottlenecks for operations.
That’s the balancing act. And right now, many firms are failing it.
Traditional compliance processes – built on periodic reviews, manual spot checks, and reactive issue-tracking – are no match for today’s regulatory demands. What’s needed is systemic supervision. Technology that flags risks in real time. Software that surface lower-cost alternatives. Dashboards that show patterns – before examiners do.
In other words, compliance must evolve from formality to infrastructure.
What Leadership Should Be Asking Now
For compliance officers, risk managers, and C-suite leaders, the right question is no longer “Are we compliant?” but:
- Can we prove it – at scale, at speed, and under scrutiny?
- Are our systems surfacing risks proactively or reactively?
- Do our advisors understand not just the rules – but the rationale?
If the answer to any of these is uncertain, the next exam could become an expensive wake-up call.
The Strategic Opportunity
This isn’t just about avoiding fines. It’s about building a competitive advantage through trust, transparency, and operational clarity.
Firms that can confidently show their work – how they assess fit, monitor conflicts, and document rationale – don’t just survive regulation. They become more investable, more scalable, and more aligned with modern fiduciary expectations.
Compliance is no longer a cost center. It’s a growth enabler—if you’re doing it right.
Bottom Line:
Regulators aren’t just changing the rules. They’re raising the standard. Best interest is no longer a checkbox – it’s a challenge. And whether a firm sees that as a burden or a blueprint will define its next chapter.
(With input from Erin Preston, Wedbush Securities; Armin Sarabi, Bates Group; Issa Hanna, Eversheds Sutherland)