Which regulation requires financial advisors to act in their clients' best interests?

The Investment Advisers Act of 1940 is the correct regulation because it establishes the fiduciary standard for financial advisors, requiring them to act in the best interests of their clients. This means that advisors must prioritize their clients' needs above their own and disclose any potential conflicts of interest. The fiduciary duty enshrined in this act places a higher level of responsibility on advisors compared to the suitability standard that applies under other regulations.

In contrast, while FINRA guidelines do set standards for the conduct of financial professionals, they primarily focus on ensuring that investment recommendations are suitable for clients rather than strictly mandating a fiduciary duty. The Securities Exchange Act of 1934 mainly deals with the regulation of securities transactions and market practices but does not impose the same fiduciary responsibility on financial advisors. The Employee Retirement Income Security Act (ERISA) governs retirement plans and fiduciary duties specifically related to those plans but does not broadly apply to all financial advisors in the same way the Investment Advisers Act does.