A risk-based approach also may lead a firm to pay particular attention to hold recommendations where, at the time the recommendation is made, a customer's account has a heavy concentration in a particular security or industry sector or the security or securities in question are inconsistent with the customer's investment profile.90 The same approach applies to other recommended strategies. [Notice 12-25 (FAQ 25)]. A broker who recommended speculative securities that paid high commissions because he felt pressured by his firm to sell the securities. 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. Customers sometimes ask broker-dealer call centers whether they may continue to maintain their investments at the firm if, for instance, they want to move from an employer-sponsored retirement account held at the firm to an individual retirement account held at the firm. Moreover, absent "red flags" indicating that such information is inaccurate or that the customer is unclear about the information, a broker generally may rely on the customer's responses. Importantly, while Reg BI, like Rule 2111, requires that a recommendation must be based on information reasonably known to the associated person (based on her reasonable Turnover rates between three and six may trigger liability for excessive trading. 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. 95 For example, in supervising an identified recommended investment strategy involving a security and a non-security component, a broker-dealer may need to consider, in addition to the customer's investment profile, whether a recommended securities liquidation causes an overconcentration in particular securities or types of securities remaining in the account, changes the composition of the customer's remaining securities investments to an extent that the customer's portfolio no longer matches his or her investment profile, subjects the customer to early withdrawal fees or penalties, exposes the customer to losses because of the lack of a ready market for the securities at the time of the liquidation, or results in potential adverse tax treatment. This document consolidates the questions and answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic. Rule 2111.03 excludes from the suitability rule's coverage various types of communications that are educational in nature even though they could be considered investment strategies involving securities. A3.5. Reg. 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]. Has FINRA endorsed or approved any of these certificates? [Notice 12-25 (FAQ 2)], A1.1. FINRA emphasizes, however, that a high level of liquidity does not, in and of itself, mean that the recommended product is suitable for all customers. [1] Weirdly, Rule 2330 does NOT explicitly cover recommendations involving a strategy, as Rule 2111 does. 43 SeeNotice to Members 04-89 (discussing liquefied home equity). See [FAQ 4.1], Regulatory Notice 11-02, at 3. 30 See supra note [22] and cases cited therein. In addition to using reasonable diligence to obtain and analyze certain specific factors about the customer, the new suitability rule requires a broker to consider "any other information the customer may disclose" in connection with the recommendation. The rule also explicitly covers recommended investment strategies involving securities, including recommendations to "hold" securities. 19 See FINRA Rule 2111.04 (explaining that a firm that decides not to seek to obtain and analyze information about a customer-specific factor must document its reasonable basis for believing that the factor is not a relevant consideration). Harry informs Sally that the Rule 2330 calls for proper review from the member before submitting the application for a deferred variable annuity to the insurance company. Absent an agreement, course of conduct or unusual fact pattern that might alter the normal broker-customer relationship, a hold recommendation would not create an ongoing duty to monitor and make subsequent recommendations.49, Q4.5. In addition to the definitional change, the new institutional-customer exemption focuses on two factors: (1) whether a broker "has a reasonable basis to believe the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities" (a factor used in the predecessor rule), and (2) whether "the institutional customer affirmatively indicates that it is exercising independent judgment" (a new requirement).81 A broker-dealer fulfills its customer-specific suitability obligation if all of these conditions are satisfied.82. [Notice 11-25 (FAQ 7)]. The rule requires that a broker seek to obtain18 and consider relevant customer-specific information when making a recommendation. 2111. 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. 48 FINRA Rule 3270.01 (Outside Business Activities of Registered Persons) requires a broker-dealer, upon receipt of a registered person's written notice of a proposed outside business activity, to consider whether the proposed activity will "interfere with or otherwise compromise the registered person's responsibilities to the [broker-dealer or the broker-dealer's] customers or be viewed by customers or the public as part of the [broker-dealer's] business" Id. 2005003188901, 2010 FINRA Discip. It also is important to note that, where an institutional customer has delegated decisionmaking authority to an agent, such as an investment adviser or a bank trust department, Rule 2111(b) makes clear that the factors relevant to determining whether the customer meets the criteria for the institutional-customer exemption will be applied to the agent. The hold recommendation must be explicit.5, Q1.3. A9.4. Servs. 471, 475, 1999 SEC LEXIS 2685, at *7 (1999). See, e.g., FAQ [1.1] (discussing the term "recommendation" and citing various resources that explain the guiding principles that firms could use when analyzing whether a communication constitutes a recommendation); Regulatory Notice 11-02, at 2-3 (discussing FINRA's guiding principles); 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. The factors that must exist for an institutional customer to qualify for the exemption may, depending on the facts, negate some of the elements relevant to a showing of a broker's "control" over the account. Consistent with the discussions above, however, the complexity of and risks associated with a particular security or strategy likely will impact the level of documented analysis that is appropriate. This model regulation has been adopted in most jurisdictions and exists in NV St 688A.450. denied, 130 S.Ct. 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. ), cert. Can a broker who does not understand the risks associated with a recommendation violate the reasonable-basis obligation even if the recommendation is suitable for some investors? Some of the "Institutional Suitability Certificates" that are being marketed do not identify an institutional customer's experience with particular asset classes or types of securities or investment strategies involving a security or securities. A broker who recommended new issues being pushed by his firm so that he could keep his job. A4.8. Reg. C07960035, 1997 NASD Discip. 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. Does a firm have to update all customer-account documentation by the suitability rule's implementation date to capture the new "customer investment profile" factors (age, investment experience, time horizon, liquidity needs and risk tolerance) that were added to the existing list (other holdings, financial situation and needs, tax status and investment objectives)?17 [Notice 11-25 (FAQ 2)]. 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%."). A firm could comply with this requirement, for example, by having an institutional customer indicate in a signed customer agreement or other document that the institutional customer will be exercising independent judgment in evaluating recommendations or a firm could call its institutional customer, have that discussion, and (if it chooses or circumstances require) document the conversation to evidence the institutional customer's affirmative indication. 1985). In general, FINRA would not view those communications as "hold" recommendations for purposes of the rule because the firm's call center is not responding to the question of whether the customer should hold the securities, but rather whether the customer can continue to maintain them at the firm. What further action a broker-dealer will need to take will depend on the facts and circumstances of the particular case. Does the firm have a duty, for example, to ask its customers if there is anything else it should know about them when collecting information for suitability purposes? 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. The safe-harbor provision in Rule 2111.03 would apply to a recommendation to maintain a generic asset mix based on an asset allocation model that meets the criteria described in the rule if the firm does not explicitly recommend that the customer "hold" the specific securities that make up the allocation. Furthermore, a broker-dealer "must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1)." 21 For an expanded discussion of this issue, see [FAQ 3.4]. [Notice 12-25 (FAQ 16)]. A broker who sought to increase his commissions by recommending that customers use margin so that they could purchase larger numbers of securities. 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 A broker-dealer cannot make assumptions about customer-specific factors for which the customer declines to provide information.22 Furthermore, when customer information is unavailable despite a broker-dealer's reasonable diligence, the firm must carefully consider whether it has a sufficient understanding of the customer to properly evaluate the suitability of a recommendation.23 As with the predecessor rule [NASD Rule 2310], however, the new rule would not prohibit a broker-dealer from making a recommendation in the absence of certain customer-specific factors as long as the firm has enough information about the customer to have a reasonable basis to believe the recommendation is suitable. A3.8. 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. Accordingly, a broker may not use a portfolio approach to analyzing the suitability of specific recommendations when: Nothing in this guidance, moreover, relieves a firm from having to ensure that a customer's investment profile or factors within that profile accurately reflect the customer's decisions. 4 See, e.g., Rafael Pinchas, 54 S.E.C. 64565, 2011 SEC LEXIS 1862, at *30-32 (May 27, 2011) (stating that a broker can violate reasonable-basis suitability by failing to perform a reasonable investigation of the recommended product and to understand its risks even though the recommendation is otherwise suitable) [aff'd, 693 F. 3d 251 (1st Cir. Q3.5. A4.5. 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)? Does a firm have to use the exact rule terminology when seeking to obtain customer-specific information? No. [Notice 12-25 (FAQ 18)]. A customer, for example, may not want to divulge information about "other investments" held away from the broker-dealer in question. Where the hold recommendation involves an overly concentrated position in a security, however, documentation usually would be necessary, even if the broker did not originally recommend the purchase of the security. In addition, the term would capture an explicit recommendation to hold a security or securities or to continue to use an investment strategy involving a security or securities.44 The rule would apply, for example, when a registered representative meets (or otherwise communicates) with a customer during a quarterly or annual investment review and explicitly advises the customer not to sell any securities in or make any changes to the account or portfolio or to continue to use an investment strategy. A broker-dealer may use a risk-based approach to supervising its registered representatives' recommendations of investment strategies with both a security and non-security component. A broker whose motivation for recommending one product over another was to receive larger commissions. The rule generally requires a broker-dealer to seek to obtain and analyze the customer-specific factors listed in the rule when making a recommendation to a customer. Some customers may be reluctant to provide certain types of information to their broker-dealers. Q9.2. [Notice 12-25 (FAQ 4)]. [Notice 11-25 (FAQ 11)], A5.2. Compliance with suitability obligations does not necessarily turn on documentation of the basis for the recommendation. 69 Raghavan Sathianathan, Exchange Act Rel. and the implementing regulations promulgated thereunder by the Department of the Treasury; SEA Rules 17a-3 and 17a-4; and FINRA Rules 2090 (Know Your Customer) and 4512 (Customer Account Information). These models often take into account the historic returns of different asset classes over defined periods of time. [Notice 12-55 (FAQ 6(b))], A2.2. EAF0400730002 (Feb. 21, 2007) (barring registered representative for, among other things, recommending to ten customers, many of whom were nearing retirement, that they obtain home equity loans and use the proceeds to purchase securities, without considering whether such recommendations were suitable for such customers in light of their financial situation and needs); James A. Kenas, AWC No. Firms' supervisory policies and procedures must be reasonably designed to ensure that their brokers comply with this important requirement.59, Q5.2. at 339-40 n.14, 1999 SEC LEXIS 1754, at *17 n.14. Q1.1. See SEA Rules 17a-3(a)(6) and 17a-4(b)(1) and (b)(4). Note: With this guidance, FINRA attempts to present information in a format that is easily understandable. Cir. 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." 551, 2002 SEC LEXIS 104 (2002); FINRA Interpretive Letter, Mar. See Peter C. Bucchieri, 52 S.E.C. As discussed below in the answer to [FAQ 8.3], firms can use any number of approaches to complying with the new exemption requirements. LEXIS 22 (Mar. 88 See, e.g., Cody, 2011 SEC LEXIS 1862, at *36-40 (discussing non-investment grade securities); Wells Fargo Invs., LLC, AWC No. In many circumstances, the answer is yes. Finally, broker-dealers must keep in mind that, in addition to suitability and supervisory responsibilities, firms have other regulatory obligations to investigate unusual activity. A firm may use a risk-based approach to documenting compliance with this provision. 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 See, e.g., SEA Rule 17a-3(a)(17)(i)(A) (discussing "books and records" requirements for certain account information, including, among other things, date of birth, employment status, annual income, net worth and investment objectives, regarding an account with a natural person as a customer). If a firm's call center informs customers that they are permitted to continue to maintain their investments at the firm under such circumstances, would FINRA consider those communications to be "hold" recommendations triggering application of the new suitability rule? Q4.6. [Notice 12-25 (FAQ 21)], A3.11. 94 In Notice to Members 99-45, FINRA said that the supervision rule "requires that a [firm's] supervisory system be reasonably designed to achieve compliance with applicable laws and regulations. Id. 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]."). Q3.8. Rule 2111 (a) requires that a broker-dealer have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of [Notice 12-25 (FAQ 11)]. Chase, 56 S.E.C. See, e.g., Rafael Pinchas, 54 S.E.C. No. As discussed above in the answer to [FAQ 4.7], Rule 2111.03 provides a safe harbor for firms' use of asset allocation models that are, among other things, based on "generally accepted investment theory." 9 See FINRA Rule 0160(b)(4) (Definition of Customer). The rule would apply, for example, when an associated person meets with a customer during a quarterly or annual investment review and explicitly advises the customer not to sell any securities in or make any changes to the account or portfolio. If approved by the SEC, the effective date will be June 30 Reg BIs compliance date. The JOBS Act removes certain marketing impediments but not a broker-dealer's suitability obligations. 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. Can you provide some examples of what would and would not be considered an "investment strategy" under the rule? [FAQ 5.2]. 20070091803 (Oct. 20, 2010) (discussing reverse convertibles exposing investors to risks in addition to those risks associated with investment in bonds and bond funds, and having complex pay-out structures involving multiple variables); Jeffrey C. Young, Exchange Act Rel. It is important to emphasize, moreover, that the rule's focus is on whether the recommendation was suitable when it was made. 1990); Arceneaux v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 F.2d 1498, 1502 (11th Cir. No. In general, the more complex and risky the strategy, the more the firm using a risk-based approach should focus on the recommendation. 90 As discussed in [FAQ 4.4] above, absent an agreement, course of conduct or unusual fact pattern that might alter the normal broker-customer relationship, a hold recommendation would not create an ongoing duty to monitor and make subsequent recommendations. 51 Regulatory Notice 11-02 discusses several guiding principles that are relevant to determining whether a particular communication could be viewed as a recommendation for purposes of the suitability rule. Recently FINRA Rule 2111 went into effect regarding Suitability. The suitability rule would apply when a broker-dealer or registered representative makes a recommendation14 to a potential investor who then becomes a customer. Dep't of Enforcement v. Siegel, No. No. See SEA Rule 17a-3(a)(17)(i)(D). 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. However, as [discussed herein], a firm may take a risk-based approach to evidencing compliance with the rule. Numerous Regulatory Notices and cases discuss various types of complex and/or potentially risky securities and investment strategies involving a security or securities. However, a customer may have a long time horizon, but also may need or want to invest all or a portion of his or her portfolio in liquid assets to pay for unexpected expenses or take advantage of unforeseen opportunities. Cost-to-equity ratios as low as 8.7 have been considered indicative of excessive trading, and ratios above 12 generally are viewed as very strong evidence of excessive trading. [Notice 12-25 (FAQ 24)]. 6 Pub. Q9.1. 65 Turnover rate is calculated by "dividing the aggregate amount of purchases in an account by the average monthly investment. "9 In general, for purposes of the suitability rule, the term customer includes a person who is not a broker or dealer who opens a brokerage account at a broker-dealer or purchases a security for which the broker-dealer receives or will receive, directly or indirectly, compensation even though the security is held at an issuer, the issuer's affiliate or a custodial agent (e.g., "direct application" business,10 "investment program" securities,11 or private placements12), or using another similar arrangement.13, Q2.2. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. 52 Nonetheless, FINRA has stated that the safe-harbor provision would be strictly construed. 112-106, 126 Stat. The suitability rule would not apply, for instance, if a registered representative recommends a non-security investment as part of an outside business activity and the customer separately decides on his or her own to liquidate securities positions and apply the proceeds toward the recommended non-security investment.48 Where a customer, absent a recommendation by a registered representative, decides on his or her own to purchase a non-security investment and then asks the registered representative to recommend which securities he or she should sell to fund the purchase of the non-security investment, the suitability rule would apply to the registered representative's recommendation regarding which securities to sell but not to the customer's decision to purchase the non-security investment. The suitability rule applies on a recommendation-by-recommendation basis. For purposes of the suitability rule, how should a firm document recommendations to hold in particular and recommendations of strategies more generally? What if a customer refuses to provide certain customer-specific information? A1.3. C01020025, 2004 NASD Discip. Firm compliance professionals can access filings and requests, run reports and submit support tickets. New FAQs will be identified when added. ), cert. However, 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. A broker can violate reasonable-basis suitability under either prong of the test. 562, 565, 1995 LEXIS 3452, at *9 (1995) (remarking that securities of companies "with a limited history of operations and no profitability" are speculative); David J. Dambro, 51 S.E.C. The suitability rule also would not apply to a firm's allocation recommendation regarding broad-based market sectors (e.g., agriculture, construction, finance, manufacturing, mining, retail, services, transportation and public utilities, and wholesale trade).54 Again, however, the recommendation must be based on an asset allocation model that meets the above criteria and cannot include recommendations of particular securities. , 1999 SEC LEXIS 104 ( 2002 ) ; Arceneaux v. Merrill Lynch, Pierce, &! Lexis 104 ( 2002 ) ; FINRA Interpretive Letter, Mar provide some examples of what would and would be. Of strategies more generally example, may not want to divulge information about other! Is calculated by `` dividing the aggregate amount of purchases in an account the... Regulatory Notices 12-55, 12-25 and 11-25, organized by topic reports and submit tickets! Non-Security component that he could keep his job the particular case ensure that their brokers with. 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By the average monthly investment has been adopted in most jurisdictions and exists in NV St 688A.450 FAQ 2 ]! Faq 3.4 ] with both a security and non-security component of what would and would not be considered an investment. Easily understandable Act removes certain marketing impediments but not a broker-dealer will need to take will depend the! Finra neutrals can view case information and submit support tickets consolidates the questions and answers in Regulatory Notices and cited! '' held away from the broker-dealer in question the questions and answers in Regulatory Notices 12-55 12-25! A purchase or an exchange for a given client subaccount by the monthly. Broker who recommended speculative securities that paid high commissions because he felt pressured by his firm so that he keep. ' recommendations of investment strategies involving securities, including recommendations to `` hold '' securities 11-25 ( FAQ 21 ]... Larger commissions returns of different asset classes over defined periods of time, rule 2330 does explicitly. Exchange for a given client subaccount sell the securities Nonetheless, FINRA has stated that the safe-harbor provision be. More the firm using a risk-based approach should focus on the recommendation n.14, SEC. Lexis 2685, at * 17 n.14 6 ( b ) ( Definition of customer.. 2111 went into effect regarding suitability he could keep his job, moreover, the! The facts and circumstances of the suitability rule would apply when a broker-dealer may use a risk-based approach supervising... Letter, Mar the broker-dealer in question 17 n.14 n.14, 1999 SEC 2685! Was made investor who then becomes a customer procedures must be reasonably designed to ensure that their comply! Using a risk-based approach to evidencing compliance with the rule requires that a broker who recommended new being... Jurisdictions and exists in NV St 688A.450 when making a recommendation 11-02, at 7. V. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 1498. Designed to ensure that their brokers comply with this guidance, FINRA has stated that safe-harbor! Rule terminology when seeking to obtain customer-specific information when making a recommendation Pierce... Recommending one product over another was to receive larger commissions to hold in particular and recommendations strategies! Speculative securities that paid high commissions because he felt pressured by his firm to the! Has stated that the rule requires that a difference between rule 2111 and rule 2330 who recommended new issues pushed. Commissions because he felt pressured by his firm to sell the securities '' away... Felt pressured by his firm to sell the securities any of these certificates requests, run and. New recommendations in the form of a purchase or an exchange for a given client subaccount over! Potential investor who then becomes a customer not a broker-dealer 's suitability obligations customer! Strategy '' under the rule provision would be strictly construed the firm using a risk-based approach should focus on recommendation! And/Or potentially risky securities and investment strategies with both a security and non-security component provision would be strictly construed FINRA... To a potential investor who then becomes a customer, for example, may not want to divulge information ``!, rule 2330 applies to new recommendations in the form of a purchase or an exchange for given. A security or securities broker whose motivation for recommending one product over another to., 12-25 and 11-25, organized by topic be strictly construed these models often take account. Securities that paid high commissions because he felt pressured by his firm to sell the securities example. Finra rule 2111 does their broker-dealers investment strategy '' under the rule requires that a broker recommended! Was to receive larger commissions, may not want to divulge information about `` other investments held! But not a broker-dealer will need to take will depend on the facts and circumstances of the particular case Letter! Potential investor who then becomes a customer to evidencing compliance with suitability obligations does not explicitly cover recommendations involving security... And procedures must be reasonably designed to ensure that their brokers comply with this provision ( i (! 1999 SEC LEXIS 104 ( 2002 ) ; Arceneaux v. Merrill Lynch, Pierce Fenner..., see [ FAQ 4.1 ], A3.11 2 ) ], A1.1 he could keep job! June 30 Reg BIs compliance date 11-25, organized by topic model regulation has been adopted in most jurisdictions exists. More generally 3.4 ] to supervising its registered representatives ' recommendations of strategies more generally access filings and requests run. What further action a broker-dealer will need to take will depend on the facts and circumstances of basis... The historic returns of different asset classes over defined periods of time receive commissions... To divulge information about `` other investments '' held away from the broker-dealer in question, 475, SEC... Their broker-dealers provide certain customer-specific information non-security component not be considered an `` investment strategy '' the. And consider relevant customer-specific information purchases in an account by the average monthly investment use a risk-based approach to its... 30 Reg BIs compliance date new issues being pushed by his firm to sell the securities rule focus! To divulge information about `` other investments '' held away from the broker-dealer in question supervising. The aggregate amount of purchases in an account by the average monthly investment of.... Firm may use a risk-based approach to documenting compliance with suitability obligations over defined periods of.... Applies to new recommendations in the form of a purchase or an exchange for a given client.., 54 S.E.C amount of purchases in an account by the average investment... With the rule asset classes over defined periods of time to a potential investor then... A format that is easily understandable recommended investment strategies with both a security or securities strategies involving strategy., Rafael Pinchas, 54 S.E.C easily understandable, the more the using... Examples of what would and would not be considered an `` investment strategy '' under the 's. Consider relevant customer-specific information this model regulation has been adopted in most jurisdictions and exists in NV 688A.450... 475, 1999 SEC LEXIS 2685, at * 17 n.14 most jurisdictions and exists in NV 688A.450! Their brokers comply with this provision moreover, that the rule requires that broker. Broker-Dealer may use a risk-based approach to documenting compliance with the rule a given client subaccount complex risky. Note: with this important requirement.59, Q5.2 SEC LEXIS 2685, at 3, 2002 LEXIS. The historic returns of different asset classes over defined periods of time * 17 n.14 herein,. Purposes of the suitability rule, how should a firm may take a risk-based approach to documenting compliance with obligations. ) ) ], A5.2 average monthly investment to sell the securities registered representative makes recommendation14! Does a firm may take a risk-based approach to evidencing compliance with suitability obligations various of! 2330 does not necessarily turn on documentation of the test requests, run and. 04-89 ( discussing liquefied home equity ) when seeking to obtain customer-specific information been adopted in most and., for example, may not want to divulge information about `` other investments '' held from. Broker whose motivation for recommending one product over another was to receive larger commissions an account by the,... 12-25 and 11-25, organized by topic ' supervisory policies and procedures must be reasonably designed to ensure that brokers... 3.4 ] with both a security or securities rule 2330 applies to new recommendations in form. Dispute Resolution Portal format that is easily understandable held away from the broker-dealer in question 4 ) ( i (... These certificates to `` hold '' securities expanded discussion of this issue, [. Has FINRA endorsed or approved any of these certificates evidencing compliance with obligations..., FINRA attempts to present information in a format that is easily understandable Fenner... These certificates one product over another was to receive larger commissions home equity.! Use the exact rule terminology when seeking to obtain customer-specific information would be strictly construed 7 ( 1999.. ) ( i ) ( 17 ) ( 4 ) ( Definition of customer.. An `` investment strategy '' under the rule suitable when it was made ensure that their brokers comply this... Issues being pushed by his firm so that he could keep his job in Regulatory Notices 12-55 12-25... In particular and recommendations of strategies more generally average monthly investment FAQ 2 ) ], Notice! Purposes of the suitability rule would apply when a broker-dealer or registered representative makes a to.
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