The New “Best Interest Rule” – Reg. BI – Protects Investors From Bad Recommendations
Investors hire financial professionals for sound advice about how to reach their goals and trust those professionals to always act in their best interest; that is, for the benefit of the investor, not the financial advisor. Surprisingly, until June 30, 2020, there was no Best Interest Rule in place. Stockbrokers and financial advisors are now held to a higher degree of care in their dealings with the investors they serve. In many cases, stockbrokers and investment advisors are held to a Fiduciary Standard; that is, the highest standard of care requiring them to act with the utmost loyalty and care and to act with prudence and not engage in any speculation with respect to a client’s funds entrusted to them. Regardless, all brokers and investment advisors have a duty to act with a reasonable standard of care; when they fail to do so, it amounts to negligence.
Until recently, FINRA Rule 2111, the Suitability Rule, was the basis underlying the most common investor claim at common law for Breach of Fiduciary Duty, Negligence, and Breach of Contract for failure to follow FINRA and other industry rules and regulations in broker-customer disputes. FINRA has now eliminated the Suitability Rule to the extent it is inconsistent with the new SEC Regulation BI-The Best Interest Rule, a higher standard of care, in making recommendations to retail customers only.
Under the new rule, the SEC and FINRA will still require its members in every retail broker-customer relationship to not only assess what the investor’s goals are, as well as his/her risk tolerance, but also consider many other factors (age, financial situation and needs, tax status, investment experience, investment time horizon, other investment holdings, time horizon, liquidity needs, etc.) relevant to the investment or investment strategy recommendation being made and make sure that recommendation not only matches the investor’s profile but to make sure the investment recommendation is in the best interest of the individual retail customer.
In other types of relationships, such as with entities and institutional investors, the duty to only recommend investments and/or strategies in which the broker or advisor has a reasonable basis to believe is suitable for the customer based upon the information obtained remains the standard.
The unsuitable recommendation under either Regulation BI-The Best Interest Rule or FINRA Rule 2111 can be in relation to purchase, sale, or even advice to hold an investment or engage an investment strategy that is not in the customer’s best interest or unsuitable, such as investing on margin, using options, or excessively trading (churning) securities in an account.
Churning is never in the best interest of customers; it is also a quantitative suitability issue. Until Regulation BI-The Best Interest Rule, courts and arbitrators could only find churning when a broker exercises control (by agreement or de facto control) over the investment decisions in an account and purchases stocks or recommends that you excessively purchase and sell stocks for the stockbroker’s benefit; i.e., commissions! Pursuant to Regulation BI-The Best Interest Rule, proof of control is no longer required. Churning is considered by many to be one of the most egregious forms of stockbroker fraud.
Hear From Our Clients
At The Law Offices of Robert Wayne Pearce, P.A., we believe the ultimate barometer of our success is surpassing the expectation of our clients.
The following clients have direct knowledge of our firm's processes from the inside and experienced our fierce advocacy.
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- “Robert Pearce is part of that unusual breed of lawyers that are able to create empathy with clients and thoroughly adopt their cause”
No half efforts here. He and his group of professionals are outstanding strategists that can execute with precise fervor and unyielding determination. Theirs is a huge wave of facts, research, precedents and preparation, that has impressed me in its thoroughness and creativity, and most importantly with the results. No stone goes unturned and no effort is ever spared. In my book, he and they are those of a very rare kind that one wants to keep for a very long time.- Ramon Flores-Esteves -
- “Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side.”
Just like the song from HAMILTON, it's so nice to have Bob Pearce on your side. He is the consumate plaintiff's lawyer: smart. dedicated, fully able to try a case but a great negotiator in a mediation. He did a wonderful job for us, fully supporting us through the process and more than holding his own against a large national law firm.- Maurice Z. -
- "Mr. Pearce and his staff exceeded all of our expectations."
Mr. Pearce and his staff exceeded all of our expectations. We were able to reach a settlement that was of our complete satisfaction, all within a very smooth, professional and efficient process. Mr. Pearce is now not only our lawyer but our family friend. We highly recommend him and his team!- Severiano L. -
- "For the best fighting chance, Robert Pearce is the lawyer you want in your corner."
This law firm is the real deal. We were so lucky that they took our case as they have so much experience in securities and all the wrongdoing that happens in these investment companies where they mislead you and your money (as in our case) into schemes that are not what you think they are. Mr. Robert Pearce is one of the best lawyers around, a truly professional who will fight for you and will tell you as it is all the time. We could not have gone thru this experience if it was not for all the advice, guidance and support he and all of his staff and associates brought to the game. For the best fighting chance, Robert Pearce is the lawyer you want in your corner.- Astrid M. -
- "He never felt intimidated and his study of the case and perseverance prevailed at all times."
Attorney Robert Pearce was our lawyer in a case against a Brokerage Firm and I'm witness to his ability and intelligence to deal with lawyers from the most prominent law firm in New York which was the key to recovering much of our losses cheered by their negligence. He never felt intimidated and his study of the case and perseverance prevailed at all times.- Jose A. C. -
- "In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars."
No lawyer except Bob said I had a chance of winning. When UBS Lawyers laughingly offered me zero to settle the dispute, Bob became even more determined to prove everybody wrong. Bob was extremely prepared, and always a step ahead of the opposing attorneys throughout the arbitration. In the end, Bob and I had the last laugh when the arbitrators awarded me almost 6 million dollars.- J. Blanco -
- "Every meeting and phone call was made with dedication and desire to help our family every step of the way."
Robert's team is excellent. They are very competitive in what they do and they are very responsible. Every meeting and phone call was made with dedication and desire to help our family every step of the way. Their professionalism, responsibility and empathy assured us that we were in good hands. Recommend to everyone.- Mayra A. -