Why Financial Professionals Ask Personal Questions: Understanding Regulation Best Interest (Reg BI)

If you’ve ever worked with a financial professional and felt surprised by the number of personal or detailed questions they ask, you’re not alone. Questions about your income, investment goals, risk tolerance, family circumstances, or even your health might seem intrusive at first. However, there's an important reason behind this level of inquiry: Regulation Best Interest (Reg BI).

What Is Regulation Best Interest?

Reg BI is a rule adopted by the U.S. Securities and Exchange Commission (SEC) that took effect in June 2020. It requires broker-dealers to act in the best interest of retail customers when making a recommendation about securities. This means putting the client’s needs ahead of the firm’s or the advisor’s own financial interests.

To comply with Reg BI, financial professionals must meet four key obligations:

1. Disclosure Obligation – Clearly disclose the scope and terms of the relationship, including any potential conflicts of interest.

2. Care Obligation – Exercise reasonable diligence, care, and skill to understand the investment options and make recommendations in the client’s best interest.

3. Conflict of Interest Obligation – Identify, disclose, and mitigate any material conflicts of interest.

4. Compliance Obligation – Implement written policies and procedures to ensure adherence to Reg BI.

Why Personal Questions Matter

To fulfill the Care Obligation, advisors must have a deep understanding of a client’s financial situation, investment objectives, and risk tolerance. This is often referred to as “making a reasonable basis recommendation,” and it can't be done accurately without knowing the full picture.

That’s why your financial professional may ask questions like:

• What is your annual income and net worth?

• Are you saving for retirement, a home, or college tuition?

• Do you have existing investments or outstanding debts?

• What is your investment experience and comfort with risk?

• Do you expect any major life changes in the near future?

These details aren’t asked to be intrusive—they're necessary to ensure that recommendations are suitable and in your best interest.

A Collaborative Process

It’s important to view these questions as part of a collaborative process. The more transparent and thorough you can be, the better positioned your advisor is to recommend strategies that align with your goals, timelines, and comfort level.

Remember: a one-size-fits-all investment plan doesn't exist. Tailored advice begins with a clear understanding of who you are—not just as an investor, but as a person.

At Legacy 1031, our main priority is to put the interests of our clients first. While it may feel uncomfortable to answer detailed questions, doing so helps ensure that the advice we provide is truly aligned with your financial goals and personal circumstances.

Disclosures:

This content is for informational purposes only and should not be considered investment, legal, or tax advice. Please consult with a qualified professional for advice specific to your individual circumstances. Regulation Best Interest applies to broker-dealers; investment advisors are subject to a fiduciary standard under the Investment Advisers Act of 1940.