Conflicts of Interest

Regulatory status current as of June 2026 — verify effective dates, dollar thresholds, and pending rulemakings against current SEC/FINRA/FinCEN sources before advising.

Core Concepts

Reg BI Conflict of Interest Obligation

Regulation Best Interest (SEC Rule 15l-1) requires broker-dealers to establish, maintain, and enforce written policies and procedures reasonably designed to identify and at a minimum disclose, or eliminate, all conflicts of interest associated with a recommendation. The obligation has three tiers: (1) disclose material conflicts, (2) mitigate conflicts that create an incentive to place the BD's interest ahead of the retail customer's interest, and (3) eliminate conflicts arising from sales contests, quotas, bonuses, and non-cash compensation that are based on the sale of specific securities or specific types of securities within a limited time period. The elimination requirement is absolute — disclosure and mitigation are insufficient for these enumerated conflicts.

IA Fiduciary Duty of Loyalty

Investment advisers owe a fiduciary duty of loyalty under IA Act Sections 206(1) and 206(2), which prohibits subordinating client interests to the adviser's own interests. The SEC's 2019 Interpretation of the Standard of Conduct for Investment Advisers clarifies that this duty requires full and fair disclosure of all material facts relating to the advisory relationship, including all material conflicts of interest. Disclosure must be sufficiently specific that a client can understand the conflict and provide meaningful consent. Generic or boilerplate disclosure is insufficient. The adviser must either eliminate the conflict or make full disclosure and obtain informed client consent.

Compensation-Based Conflicts

Compensation structures are the most pervasive source of conflicts: