How to Spot Bad Brokerage Accounts Under Reg BI

Not all investment accounts are the same, and under Regulation Best Interest, brokers must explain the differences. Unfortunately, many brokerage accounts still include practices that can cost investors thousands of dollars over time.

Here are three red flags to watch out for in a bad brokerage account:

1. Hidden Fees & Conflicts Brokers often earn more when you buy certain funds or products. If they don’t tell you this upfront, it’s a violation of Reg BI. You should always ask: “Are you recommending this because it’s best for me, or because it pays you more?”

2. Lack of Fair Comparison with Advisory Accounts Reg BI requires brokers to compare brokerage and advisory accounts. If they skip this, you may be pushed into an account that benefits them more than you. Advisory accounts usually charge a flat fee, while brokerage accounts often hide costs in commissions.

3. Placement Fees & Unnecessary Costs Some firms charge “placement fees” just for putting you in an investment. These fees are prohibited under Reg BI. If you see extra charges with no clear explanation, it’s a red flag.

The good news is that Reg BI gives you recourse. If you discover your broker failed to disclose fees, conflicts, or account options, you may have the right to complain and seek remedies.

The key takeaway is simple: if it feels hidden, confusing, or one-sided, ask questions. Reg BI was designed to give investors the clarity they deserve.