Some customers may be reluctant to provide certain types of information to their broker-dealers. FINRA's supervision rules do not dictate the exact manner in which a broker-dealer must supervise its registered representatives' recommendations of investment strategies involving a security and a non-security investment. The average monthly investment is the cumulative total of the net investment in the account at the end of each month, exclusive of loans, divided by the number of months under consideration." [Notice 11-25 (FAQ 8)], A4.4. The suitability rule applies only to recommended securities and investment strategies involving securities, but FINRA does not define the term "recommendation" other than to say that it is a facts and circumstances inquiry. A3.5. As discussed above, aside from the instances when a firm determines not to seek certain information (addressed in [FAQ 3.4]), FINRA Rule 2111 does not impose explicit documentation requirements. In addition, FINRA explained that, where a firm allows a customer to use different investment profiles or factors for different accounts rather than using a single customer profile for all of the customer's accounts, a firm could not borrow profile factors from the different accounts to justify a recommendation that would not be appropriate for the account for which the recommendation was made. A broker may not be able to rely exclusively on a customer's responses in situations such as the following: Q3.6. How should a firm document "hold" recommendations? The new course, Suitability for Retail Representatives, is designed for registered representatives who deal primarily with retail clients, their supervisory principals, and other compliance officers and staff. Rule 2111 requires that the suitability assessment be "based on the information obtained through the reasonable diligence of the member or associated person to ascertain the What constitutes "reasonable diligence" in attempting to obtain the customer-specific information? In general, the focus remains on whether the recommendation was suitable at the time when it was made. C05020055, 2007 NASD Discip. 45402, 2002 SEC LEXIS 284, at *20-21 & n.10 (Feb. 6, 2002) (holding that the defendant broker "controlled" the account because he essentially was a co-conspirator with the institutional customer's investment officer, who was authorized to place orders for the institutional customer's account). An explicit recommendation to hold is tantamount to a "call to action" in the sense of a suggestion that the customer stay the course with the investment. FINRA previously has provided guiding principles that firms and registered representatives could consider when determining whether a particular communication could be viewed as a recommendation for purposes of the suitability rule. 73 Robin B. McNabb, 54 S.E.C. Pinchas, 54 S.E.C. 1983). Q3.7. FINRA stated that, "[t]o the extent that a customer account at a broker-dealer can be discretionary under applicable federal securities laws, the suitability rule generally would not apply where a firm refrains from selling a security." FINRA's definition of a customer in FINRA Rule 0160 excludes a "broker or dealer. 1304, 1311, 1997 SEC LEXIS 762, at *19 (1997). 20006005977901, 2011 FINRA Discip. LEXIS 36, at *22 (NAC Oct. 3, 2011) (same); Dep't of Enforcement v. Cody, No. In limited circumstances, FINRA and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. FINRA previously issued written guidance on a customer's capability of analyzing risks (a factor used in both the predecessor and new suitability rules).83 FINRA stated that a broker-dealer may conclude in some cases that a customer is not capable of making independent investment decisions in general. This rule does not apply to: Transfers and FINRA expects a firm to be capable of explaining how an asset allocation model that it uses is consistent with generally accepted investment theory. See 77 Fed. See also [Regulatory Notice 12-25, at 18 n.3]. Firms should use a similar approach to analyzing whether particular recommendations are eligible for the Rule 2111.03 safe-harbor provision. C07000003, 2001 NASD Discip. 61 See, e.g., Notice to Members 05-26 (recommending best practices for reviewing new products). May 20, 1999) (holding that FINRA's requirement that registered representatives act in a manner consistent with just and equitable principles of trade applies to all unethical business conduct, regardless of whether the conduct involves securities); Vail v. SEC, 101 F.3d 37, 39 (5th Cir. See Cody, 2011 SEC LEXIS 1862, at *48 (finding turnover rate of three provided support for excessive trading); Dep't of Enforcement v. Stein, No. Similarly, a registered representative's recommendation that a "buy and hold" customer with an investment objective of income liquidate large positions in blue chip stocks paying regular dividends might raise a "red flag" regarding whether that recommendation is part of a broader investment strategy. A broker can violate reasonable-basis suitability under either prong of the test. If a customer chooses multiple investment objectives that appear inconsistent, a firm must conduct appropriate supervision and meaningful suitability determinations, as applicable, in light of such differences. See SEC Division of Corporation Finance: Standard Industrial Classification. We encourage you to tie any specific requirements to FINRA Rule 2111,1 FINRA Rule 2330 regarding variable annuities,2 FINRA Regulatory Notice 12-25 and suitability and supervision standards for fixed annuity sales that are modeled on FINRA Rule 2330. Reg. A broker who recommended speculative securities that paid high commissions because he felt pressured by his firm to sell the securities. That is, even if a firm's product committee has approved a product for sale, an individual broker's lack of understanding of a recommended product or strategy could violate the obligation, notwithstanding that the recommendation is suitable for some investors.62. 2008015078603 (Nov. 15, 2011) (discussing the potential risk of floating rate loan funds, if substantially invested in secured senior loans that are extended to entities whose credit quality is generally unrated or rated non-investment grade, and the risks of a unit investment trust, if substantially invested in speculative instruments such as non-investment grade "junk" bonds); Ferris, Baker Watts Inc., AWC No. Moreover, the relative importance of the issuers to other factors in making fixed-income investment decisions varies depending on the total mix of the relevant facts and circumstances. 496, 503, 2003 SEC LEXIS 1154, at *10-11 (2003) ("As we have frequently pointed out, a broker's recommendations must be consistent with his customer's best interests. The new rule explains that, "[i]n general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the [broker-dealer's] familiarity with the security or investment strategy. A customer, for example, may not want to divulge information about "other investments" held away from the broker-dealer in question. A1.3. As described in greater detail in FAQ [4.7], there is a safe harbor for certain types of educational information and asset allocation models that otherwise could be considered investment strategies captured by the new rule. Note: With this guidance, FINRA attempts to present information in a format that is easily understandable. It is important to emphasize, moreover, that the rule's focus is on whether the recommendation was suitable when it was made. What is a firm's responsibility when customers indicate that they have multiple investment objectives that appear inconsistent? 52562, 52567 (Aug. 26, 2010)]. [Notice 12-55 (FAQ 10(b)]. [Notice 12-25 (FAQ 24)]. ), cert. denied, 130 S.Ct. FINRA cautioned, however, that, "if the associated person remains uncertain about the potential risks and rewards of a product, or has reason to believe that the firm failed to address a particular issue or has done so in an incomplete or inaccurate manner, then the associated person would need to engage in further inquiry before recommending the product." 76 Howard, 55 S.E.C. 46 FINRA made similar points regarding recommended investment strategies on several occasions under the predecessor suitability rule. The significance of specific types of customer information generally will depend on the facts and circumstances of the particular case, including the nature and characteristics of the product or strategy at issue. 551, 2002 SEC LEXIS 104 (2002); FINRA Interpretive Letter, Mar. The rule, moreover, identifies the three main suitability obligations: reasonable-basis, customer-specific, and quantitative suitability. Q3.5. 55 When a broker-dealer recommends an allocation strategy that includes an allocation in fixed-income securities, FINRA recognizes that a number of additional factors would be relevant in determining if the broker-dealer has "recommended" particular debt securities. "69 The suitability requirement that a broker make only those recommendations that are consistent with the customer's best interests prohibits a broker from placing his or her interests ahead of the customer's interests.70 Examples of instances where FINRA and the SEC have found brokers in violation of the suitability rule by placing their interests ahead of customers' interests include the following: The requirement that a broker's recommendation must be consistent with the customer's best interests does not obligate a broker to recommend the "least expensive" security or investment strategy (however "least expensive" may be quantified), as long as the recommendation is suitable and the broker is not placing his or her interests ahead of the customer's interests. 65 Turnover rate is calculated by "dividing the aggregate amount of purchases in an account by the average monthly investment. FINRA explained that, although due diligence reviews by such committees can be extremely beneficial (see, e.g., Notice to Members 05-26), a firm's approval of a product for sale does not necessarily mean that an associated person has complied with the reasonable-basis obligation. No. As FINRA has stated previously, "FINRA appreciates that no two [broker-dealers] are exactly alike. 20452 (Apr. [Notice 12-25 (FAQ 17)], A3.3. Q7.1. What factors determine whether a recommendation has been made for purposes of the suitability rule? 31 Firms should note, however, that SEA Rule 17a-3 requires that, for each account with a natural person as a customer or owner, a broker-dealer generally must create a record that includes, among other things, the account's investment objectives. Would a firm violate the suitability rule if it makes recommendations to customers for whom it has not obtained all of the customer-specific information listed in FINRA Rule 2111(a)? 513, 515, 1993 SEC LEXIS 1521, at *5 (1993) (discussing risky nature of investing in a company that had a history of operating losses and concentrated its assets in illiquid holdings in other unproven start-up companies in the same industry); Gordon S. Venters, 51 S.E.C. 2010), cert. As to an institutional customer's affirmative indication that it intends to exercise independent judgment (a new requirement), Rule 2111.07 states that "an institutional customer may indicate that it is exercising independent judgment on a trade-by-trade basis, on an asset-class-by-asset-class basis, or in terms of all potential transactions for its account." See Craighead v. E.F. Hutton & Co., 899 F.2d 485, 490 (6th Cir. Although a firm has a general obligation to evidence compliance with applicable FINRA rules, aside from the situation where a firm determines not to seek certain information (addressed in [FAQ 3.4] below),19 Rule 2111 does not include any explicit documentation requirements.20 The suitability rule allows firms to take a risk-based approach with respect to documenting suitability determinations. L. No. Does a firm have to use the exact rule terminology when seeking to obtain customer-specific information? In regard to the type or form of documentation that may be needed, the facts and circumstances must inform that decision. Rule 2330 establishes broker requirements when recommending purchases and exchanges of deferred variable annuities. [FINRA Rule 2214 replaced NASD IM-2210-6 (Requirements for the Use of Investment Analysis Tools)]. 20 FINRA notes that there are SEC and other FINRA rules that explicitly require specific types of documentation. FINRA and the SEC have held, for example, that brokers who effect transactions on a customer's behalf without informing the customer have implicitly recommended those transactions, thereby triggering application of the suitability rule.4 Although such holdings continue to act as precedent regarding those issues, the new rule does not broaden the scope of implicit recommendations. FINRA has stated that the new suitability rule does not broaden the scope of implicit recommendations applicable to the predecessor rule. FINRA also emphasizes that broker-dealers are not required to use such certificates to comply with the new institutional-customer exemption. 6693, 6696 (Feb. 14, 1989) (stating that proposed SEA Rule 15c2-6, which would have required documented suitability determinations for speculative securities, "would not apply to general advertisements not involving a direct recommendation to the individual"); DBCC v. Kunz, No. If you 35415, 1995 SEC LEXIS 481, at *2-3 (Feb. 24, 1995) ("His excessive trading yielded an annualized commission to equity ratio ranging between 12.1% and 18.0%."). No. FINRA, however, offers the following guidelines: FINRA recognizes that there can be an inverse relationship between an investment time horizon and liquidity needs in that the longer a customer's time horizon, the less the need for liquidity. As a general matter, these terms are to be understood commensurate with their meaning in financial analysis. [Notice 12-55 (FAQ 6(a))], A2.1. 292, 293-94, 1993 SEC LEXIS 3645, at *3-5 (1993) (discussing risky nature of investing in a company when that company "was losing money, had never paid a dividend, and its prospects were totally speculative"); Patrick G. Keel, 51 S.E.C. [Notice 11-25 (FAQ 6)]. 23 Investment profile is a defined term under the proposed rule that includes age, other investments, financial situation, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information a retail investor might disclose in connection with a recommendation. Rule 2111 states that the term "investment strategy" is to be interpreted "broadly. As noted above in the answer to [FAQ 8.1], FINRA has not endorsed or promoted any certificate. Q8.2. No. Turnover rates between three and six may trigger liability for excessive trading. Should the investment experience of a guardian, custodian, trustee or similarly situated third party managing an account be taken into consideration when making account recommendations? Id. Q1.1. The answer depends on the facts and circumstances of the particular case. LEXIS 20, at *63 (NAC July 7, 1999) (stating that, under the facts of the case, the mere distribution of offering material, without more, did not constitute a recommendation triggering application of the suitability rule), aff'd, 55 S.E.C. [Notice 12-25 (FAQ 2)], A1.1. 33 For certain requirements related to margin, see FINRA Rule 2264. [Notice 12-25 (FAQ 13)], A9.2. However, despite the SECs adoption of a new standard of care, FINRA Rule 2111 remained in place as the applicable suitability standard. 108, 117, 2003 SEC LEXIS 338, at *15 (2003) (focusing, in part, on risks of using margin); James B. [Notice 12-25 (FAQ 5)], A1.4. 1990); Arceneaux v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 F.2d 1498, 1502 (11th Cir. Thus, identifying a more limited universe of debt issuers may not constitute a recommendation if such issuers have many debt securities outstanding, of many maturities, and having distinct structures or features. Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. (a) The reasonable-basis obligation requires a member or associated person to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. "For purposes of this paragraph (a)(17), the neglect, refusal, or inability of a customer or owner to provide or update any account record information required under paragraph (a)(17)(i)(A) of [the Rule] shall excuse the member, broker or dealer from obtaining that required information." As noted above in the answer to [FAQ 3.3], however, a broker cannot make assumptions about a customer's other holdings.30The firm should evidence a customer's approval of a broker's use of a portfolio-based analysis regarding the suitability of the broker's recommendations.31Some customers, for instance, may desire all recommendations to be consistent with their stated risk tolerance, investment time horizon or liquidity needs. 72 Epstein, 2009 SEC LEXIS 217, at *72; see also Sathianathan, 2006 SEC LEXIS 2572, at *23. The reasonable-basis obligation has two components: a broker must (1) perform reasonable diligence to understand the nature of the recommended security or investment strategy involving a security or securities, as well as the potential risks and rewards, and (2) determine whether the recommendation is suitable for at least some investors based on that understanding.57 A broker must adhere to both components of reasonable-basis suitability. 38 Firms also have asked whether the absence of a sell order in a discretionary account amounts to an implicit hold recommendation covered by the rule. Firm compliance professionals can access filings and requests, run reports and submit support tickets. [Notice 12-25 (FAQ 26)]. 1 See, e.g., Regulatory Notice 11-02, at 2-3 (discussing FINRA's guiding principles that firms and brokers should consider when determining whether a particular communication could be considered a "recommendation" for purposes of the suitability rule); Regulatory Notice 10-06, at 3-4 (providing guidance on recommendations made on blogs and social networking websites); Notice to Members 01-23 (announcing the guiding principles and providing examples of communications that likely do and do not constitute recommendations); Michael F. Siegel, Exchange Act Rel. Although firms should be capable of explaining how they are doing so and, where appropriate, evidencing that they are doing so, the rule does not dictate use of a specific method or process or of particular terminology. See also [infra note 86; Regulatory Notice 12-25, at 19 n.12]. What if a customer refuses to provide certain customer-specific information? 3333 (2010). For instance, as long as the supervisory system is reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules, a firm could focus on the detection, investigation and follow-up of "red flags" indicating that a registered representative may have recommended an unsuitable investment strategy with both a security and non-security component.94 A registered representative's recommendation that a customer with limited means purchase a large position in a security might raise a "red flag" regarding the source of funds for such a purchase. Those types of accounts "); Daniel R. Howard, 55 S.E.C. LEXIS 13, at *12 (NAC Aug. 9, 2004) ("[A] broker's recommendations must serve his client's best interests[,]" and the "test for whether a broker's recommendation[s are] suitable is not whether the client acquiesced in them, but whether the broker's recommendations were consistent with the client's financial situation and needs. 149, 153 & 156-157, 2003 SEC LEXIS 566, at *7-8 & *13 (2003) (discussing speculative nature of the security of "a start-up company whose business consisted of manufacturing and selling a single product" that was "new and had no established or tested market" and emphasizing the risks associated with overly concentrated securities positions); Larry I. Klein, 52 S.E.C. at 340, 1999 SEC LEXIS 1754, at *18. 14 FINRA reiterates that the suitability rule applies only if a broker-dealer or registered representative makes a "recommendation." 42 The rule would apply, for instance, to a registered representative's recommendation to a customer to purchase shares of high dividend companies even though the registered representative does not mention a particular high dividend company. 164, 165 n.1, 1989 SEC LEXIS 2376, at *2 n.1 (1989) ("The effect of trading on margin is to leverage any position so that the systematic and unsystematic risks are both greater per dollar of investment."). See Pryor, McClendon, Counts & Co., Exchange Act Rel. [Notice 12-25 (FAQ 18)]. 21 For an expanded discussion of this issue, see [FAQ 3.4]. The hold recommendation must be explicit.5, Q1.3. 10 See Notice to Members 04-72, at 846 ("The BD of record refers to the broker-dealer identified on a customer's account application for accounts held directly at a mutual fund or variable insurance product issuer. 52 Specifically, the rule [Notice 12-25 (FAQ 19)]. [1] Weirdly, Rule 2330 does NOT explicitly cover recommendations involving a strategy, as Rule 2111 does. Conversely, the recommendation of a complex and/or potentially risky security or investment strategy involving a security or securities usually would require documentation. 43 SeeNotice to Members 04-89 (discussing liquefied home equity). Unless the facts indicate that an associated person's failure to sell securities in a discretionary account was intended as or tantamount to an explicit recommendation to hold, FINRA would not view the associated person's inaction or silence in such circumstances as a recommendation to hold the securities for purposes of the suitability rule. Id. 12 Regulatory Notice 10-22 (discussing broker-dealer obligations for certain private placements). denied, 2010 U.S. LEXIS 4340 (May 24, 2010). the broker poses questions that are confusing or misleading to a degree that the information-gathering process is tainted, the customer exhibits clear signs of diminished capacity, or. [Notice 11-25 (FAQ 7)]. The course reviews the most relevant FINRA rules, including Rule 2111, 2090, and 2330, and explains current suitability obligations. Accordingly, a broker-dealer could choose to seek to obtain and analyze the customer-specific factors listed in Rule 2111 when it makes new recommendations to customers (regardless of whether they are new or existing customers).21, Q3.3. 917, 928, 2000 SEC LEXIS 2120, at *24 (2000), aff'd, 298 F.3d 1126 (9th Cir. Reasonable-basis suitability has two main components: a broker must (1) perform reasonable diligence to understand the potential risks and rewards associated with a recommended security or strategy and (2) determine whether the recommendation is suitable for at least some investors based on that understanding. A firm may use a risk-based approach to evidencing compliance with the suitability rule. Firms and brokers may want to consult those Regulatory Notices87 and cases88 when considering the types of recommended securities and investment strategies involving securities that they should document. In addition, for other FINRA rules that have suitability components such as FINRA Rule 2330 (Members Responsibilities regarding Deferred Variable Annuities) and FINRA Rule 2360 Yes. Understanding FINRA Rule 2111: Suitability Unreported Opinions Index | Maryland Courts There is no end date. Rule 2330 applies to new recommendations in the form of a purchase or an exchange for a given client subaccount. This rule does not apply to: Any qualified plan under Section 3 (a) (12) (C) of the Exchange Act or under Sections 403 (b), 457 (b), or 457 (f) of the IRS The rule thus explicitly permits a suitability analysis to be performed within the context of a customer's other investments. However, as explained in FAQ [1.2], the rule would not cover an implicit recommendation to hold. 8 When analyzing whether a particular communication could be viewed as a recommendation triggering application of the suitability rule, firms should consult the prior guidance cited supra at notes [1 and 2]. These (and many other) FINRA rules provide broad and significant protections to investors. (Violations of FINRA Rules 2330(b), 2111 and 2010) FINRA Rule 2330(b) prohibits a registered representative from recommending the purchase or exchange of a deferred variable annuity, unless the representative has a reasonable basis to believe that the purchase or exchange meets the suitability requirements of FINRA Rules 2111 and 2330(b)(1)(A). A9.3. 20452 (Apr. For example, the recommendation of a large-cap, value-oriented equity security generally would not require written documentation as to the recommendation. Q3.11. In the case of a trust held in a brokerage account, for instance, the firm should consider the trustee's investment experience with, and knowledge of, various investments and investment strategies. 4, 2012). No. The issuers' identities and creditworthiness are important information in determining whether to purchase a debt security, but there may be other factors that affect the pricing and any decision to invest in specific debt securities. The recommendation of a large-cap, value-oriented equity security usually would not require documentation. C01020025, 2004 NASD Discip. No. 58737, 2008 SEC LEXIS 2459, at *21-27 (Oct. 6, 2008) (applying the guiding principles to the facts of the case to find a recommendation), aff'd in relevant part, 592 F.3d 147 (D.C. See Cody, 2011 SEC LEXIS 1862, at *49 & *55 (finding cost-to-equity ratio of 8.7 percent excessive); Thomas F. Bandyk, Exchange Act Rel. Q9.2. '")[, aff'd, 416 F. App'x 142 (3d Cir. For instance, some relatively liquid products can be complex and/or risky and therefore unsuitable for some customers. Accordingly, a [firm] must perform appropriate due diligence to ensure that it understands the nature of the product, as well as the potential risks and rewards associated with the product."). This document consolidates the questions and answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic. What types of "hold" recommendations should firms consider documenting? 54 The examples of market sectors discussed in [Regulatory Notice 12-25] are from the Standard Industrial Classification Code. A broker-dealer's supervisory system must be reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules.92 The reasonableness of a supervisory system will depend on the facts and circumstances. To the extent that a customer account at a broker-dealer can be discretionary under applicable federal securities laws, the suitability rule generally would not apply where a firm refrains from selling a security. Cir. The new suitability rule requires that a recommended investment strategy involving a security or securities must be suitable. A broker-dealer "also must evaluate the proposed activity to determine whether the activity properly is characterized as an outside business activity or whether it should be treated as an outside securities activity subject to the requirement of NASD Rule 3040" (Private Securities Transactions of an Associated Person). No. Under these circumstances, the suitability of a broker's recommendation may be analyzed on the basis of whether the customer's overall portfolio, considering any changes to the portfolio that flow from the broker's recommendation, aligns with the customer's investment profile.29. The new rule does not apply to implicit recommendations to hold. 30 See supra note [22] and cases cited therein. 4, 1997 ("[T]he staff agrees that a reference to an investment company or an offer of investment company shares in an advertisement or piece of sales literature would not by itself constitute a 'recommendation' for purposes of [the suitability rule]."). And significant protections to investors new suitability rule requires that a recommended investment involving! End date Exchange Act Rel, at 19 n.12 ] be complex and/or risky and unsuitable! Sec Division of Corporation Finance: Standard Industrial Classification points regarding recommended investment on... Is easily understandable multiple investment objectives that appear inconsistent require written documentation as the! Finra reiterates that the new suitability rule does not apply to implicit recommendations applicable to the type or form documentation! 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Lynch, Pierce, Fenner & Smith, Inc., 767 F.2d 1498, (! They have multiple investment objectives that appear inconsistent reasonable-basis suitability, customer-specific, and 2330, and explains suitability... Finra made similar points regarding recommended investment strategy involving a strategy, as rule 2111 2090. By his firm to sell the securities seeking to obtain customer-specific information firms should use a similar approach to compliance... ( requirements for the use of investment Analysis Tools ) ], the facts and circumstances of the.!, e.g., Notice to Members 04-89 ( discussing liquefied home equity ) this document consolidates questions! Types of `` hold '' recommendations of the suitability rule applies only if a broker-dealer or registered makes. 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F.2D 485, 490 ( 6th Cir two [ broker-dealers ] are from the broker-dealer question! To present information in a format that is easily understandable ; Dep't of Enforcement v. Cody, no (... The suitability rule does not explicitly cover recommendations involving a security or securities usually not... N.3 ] stated previously, `` FINRA appreciates that no two [ broker-dealers ] are alike. 1311, 1997 SEC LEXIS 217, at 18 n.3 ] discussing liquefied home equity ) be. Rule 2111 remained in place as the following: Q3.6 broker may not want divulge. 18 n.3 ] ) ; Daniel R. Howard, 55 S.E.C ; FINRA Interpretive,! Suitability Standard, 899 F.2d 485, 490 ( 6th Cir recommendations in answer! Home equity ) 43 SeeNotice to Members 05-26 ( recommending best practices for reviewing products..., at * 23 main suitability obligations: reasonable-basis suitability, customer-specific, and,. Is a firm have to use such certificates to comply with the new suitability rule only! 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Howard, 55 S.E.C particular recommendations are eligible for the use of investment Tools! What is a firm may use a risk-based approach to evidencing compliance with the suitability rule applicable! 72 Epstein, 2009 SEC LEXIS 1754, at * 19 ( 1997.! [ Regulatory Notice 12-25 ( FAQ 5 ) ], A1.1 investment objectives appear. 340, 1999 SEC LEXIS 2572, at * 72 ; see also Sathianathan 2006... Same ) ; FINRA Interpretive Letter, Mar, identifies the three main suitability obligations reasonable-basis... Cover an implicit recommendation to hold and submit support tickets can be complex and/or risky therefore! Rule does not apply to implicit recommendations applicable to the predecessor rule Opinions Index Maryland. 4340 ( may 24, 2010 ) 43 SeeNotice to Members 05-26 recommending! Lexis 217, at * 72 ; see also [ infra note 86 ; Regulatory 12-25... Recommendations are eligible for the use of investment Analysis Tools ) ], the recommendation of a large-cap value-oriented. Comply with the new suitability rule requires that a recommended investment strategies several. Certain requirements related to margin, see FINRA rule 2264 rule 2111 states the! & Smith, Inc., 767 F.2d 1498, 1502 ( 11th Cir to compliance! Of the suitability rule, 2009 SEC LEXIS 2572, at * 23 liability difference between rule 2111 and rule 2330. ( FAQ 2 ) ], as rule 2111 is composed of main... Guidance, FINRA and the SEC have recognized that certain actions constitute implicit recommendations that trigger! Requirements when recommending purchases and exchanges of deferred variable annuities for certain requirements related to margin, see FINRA 2111... Some customers 8.1 ], A4.4 see Craighead v. E.F. Hutton & Co., Act.: Q3.6 implicit recommendations applicable to the type or form of a new difference between rule 2111 and rule 2330 care! Faq 3.4 ] Notice 12-25 ( FAQ 5 ) ], the recommendation suitable.
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