Reg BI in the Real World: What the David Lerner Case Actually Tells You

If you want a clear picture of where Reg BI is right now, the David Lerner Associates case is it. This isn’t a “new rule” story anymore—Reg BI is fully up and running, and it’s being applied in a very practical, enforcement-driven way by the SEC and FINRA.

A few things are becoming hard to ignore.

Exams are now the front door to enforcement

Regulators are increasingly using exams to tee up cases. In DLA, the SEC flagged an issue during an exam (how the firm treated its planning materials), the firm didn’t change course—and that exact issue turned into an enforcement action.

In other words, if you get pushback in an exam and don’t fix it, expect it to come back as enforcement.

This is not a disclosure exercise

The SEC is very clearly not asking: did you disclose it?

They’re asking:

• Did you actually consider costs?
• Did you look at reasonably available alternatives?
• Did you put the client ahead of the firm?
• In DLA, disclosure didn’t carry the day—the firm still failed the Care Obligation.
• In sum, Reg BI is about what you actually do, not what you say in documents.

“Recommendation” keeps getting broader (in real life)

This is probably the biggest practical shift.

The firm argued its “Customized Investment Plans” were just tools. The SEC said no—they were recommendations because they were tailored and designed to get the client to act.

That’s the key lens now: does this realistically influence a client decision? If yes, it’s probably a recommendation.

In practice, that pulls more and more in-scope:

• Client-specific plans and proposals
• Model portfolios or curated lists
• Rollover and account-type conversations
• Planning tools pointing to strategies or securities

Labels and disclaimers don’t move the needle much here. Instead, if it’s tailored and nudges the client, treat it like a recommendation.

FINRA is pushing in the same direction—maybe faster

FINRA’s cases are reinforcing all of this, especially around:

• Front-line conduct
• Supervision
• Cost and complexity

And importantly, FINRA has shown it’s willing to bring cases just for weak systems and supervision—even without clear investor harm.

Your takeaway should be: “we have a policy” is not a defense—your system has to actually work.

So what should firms actually do?

A few practical shifts are coming through clearly:

• Think broadly about recommendations. Don’t rely on labels—focus on how the communication functions.
• Show your work on costs and alternatives. This needs to be real, not box-checking.
• Make compliance operational. Policies, surveillance, supervision—they all need to work in practice.
• Revisit client materials. Plans, models, and tools are increasingly being treated as recommendations.
• Treat exam feedback seriously. Today’s exam comment can easily become tomorrow’s enforcement action.

Bottom line

Reg BI isn’t narrowing—it’s expanding in how it’s applied. Regulators are looking at the real-world effect of what you do, not how you characterize it.

If something is tailored to a client and realistically influences their behavior, you should assume it’s a recommendation—and that it will be judged against the full set of Reg BI obligations.