Summary Traditionally active power loss and power quality issues are major concerns in distribution network management. Nowadays, these concerns become more important by integrating distributed energy resources (DERs) in the networks. Network reconfiguration has been adopted as an effective remedy. In this paper, loss reduction and improvement of power quality indices such as total harmonic distortion (THD) and voltage sag are modeled as a multi‐objective problem. The function is weighted sum of terms, which are dealt with each objective. To solve the problem, branch exchange method for the network reconfiguration is modified. In the proposed algorithm, branch exchange operation iterates sequentially. Then, the yielded solution is compared with the best one that has been saved in the memory unit. Because memory is utilized in the method, it is called retentive branch exchange. Application of the proposed method is validated by planning and simulating six scenarios for an unbalanced radial 25‐bus network. For different operation conditions and power quality disturbances, simulation results show high ability and effectiveness of the proposed method.