Can a broker make recommendations based on a customer's overall portfolio, including investments held at other financial institutions? ), cert. 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. Although FINRA does not define the term "recommendation," it has offered several guiding principles that firms and brokers should consider when determining whether particular communications could be viewed as recommendations. C3A960029, 1999 NASD Discip. 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. SEC, 101 F.3d 37, 39 (5th Cir. 1996) (same); Robert L. Wallace, 53 S.E.C. 989, 995, 1998 SEC LEXIS 2437, at *13 (1998) (emphasizing, in an action involving viatical settlements, that Rule 2210 is "not limited to advertisements for securities, but provide [s] standards applicable to all [broker-dealer] communications with the public"). [FAQ 5.2]. No. 68 See Regulatory Notice 11-02, at 7 n.11; SEC Staff Study on Investment Advisers and Broker-Dealers as Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, at 59 (Jan. 2011) (IA/BD Study). [Notice 12-25 (FAQ 22)], A5.1. When a broker is aware of a customer's overall portfolio (including investments held at other financial institutions), the broker is permitted to make recommendations based on the customer's overall portfolio as long as the customer is in agreement with such an approach. Where, for example, a registered representative makes a recommendation to purchase a security to a potential investor, the suitability rule would apply to the recommendation if that individual executes the transaction through the broker-dealer with which the registered representative is associated or the broker-dealer receives or will receive, directly or indirectly, compensation as a result of the recommended transaction.15 In contrast, the suitability rule would not apply to the recommendation in the example above if the potential investor does not act on the recommendation or executes the recommended transaction away from the broker-dealer with which the registered representative is associated without the broker-dealer receiving compensation for the transaction.16, Q3.1. Q9.2. For example, FINRA and the SEC have held that associated persons 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, 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]."). 471, 475, 1999 SEC LEXIS 2685, at *7 (1999). 43 SeeNotice to Members 04-89 (discussing liquefied home equity). Yes. 2010), cert. 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. 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. See SEA Rule 17a-3(a)(17)(i). These are only examples of how some firms may document "hold" recommendations if necessary. 4 See, e.g., Rafael Pinchas, 54 S.E.C. A broker can violate reasonable-basis suitability under either prong of the test. No. 2111. A turnover rate greater than six creates a presumption that the trading was excessive. 2 See, e.g., SEC Adoption of Rules Under Section 15(b)(10) of the Exchange Act, 32 Fed. 13 Nothing in this guidance shall be construed as altering a broker-dealer's obligations under applicable federal laws, regulations and rules or other FINRA rules, including, but not limited to, Sections 9, 10(b) and 15(c) of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933, the Bank Secrecy Act, 31 U.S.C. "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." 800, 805 n.11, 1996 SEC LEXIS 1331, at *12 n.11 (1996). See also Donna M. Vogt, AWC No. 53 FINRA Rule 2111.03. 58 That is true under case law addressing the predecessor suitability rule as well. 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. A4.2. "68 What does it mean to act in a customer's best interests? Can a customer with multiple accounts at a single firm have different investment profiles or investment-profile factors (e.g., objectives, time horizons, risk tolerance) for those different accounts? 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). The suitability rule generally requires broker-dealers to use reasonable diligence to seek to obtain and analyze the customer-specific factors listed in the rule. FINRA has extensively addressed those guiding principles in past Regulatory Notices, and cases have applied them to specific facts.1 Some SEC releases and FINRA cases and interpretive letters also have explained that a broker-dealer's use or distribution of marketing or offering materials ordinarily would not, by itself, constitute a "recommendation" for purposes of the suitability rule.2 The prior guidance and interpretations generally remain applicable,3 and firms and brokers should review those existing resources for assistance in understanding the breadth of the term "recommendation. 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. The rule explicitly states that the term "strategy" should be interpreted broadly.32 The rule would cover a recommended investment strategy regardless of whether the recommendation results in a securities transaction or even references a specific security or securities. at 1100, 2002 SEC LEXIS 1909, at *6-7. No. However, where a broker-dealer's or registered representative's recommendation does not refer to a security or securities, the suitability rule is not applicable. No. To meet its suitability obligations, a firm must obtain and analyze enough customer information to have a reasonable basis to believe the recommendation is suitable. 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. Accordingly, the suitability rule would cover a firm's recommendation that a customer purchase securities using margin, whereas the rule generally would not cover a firm's brochure that simply explains the risks and benefits of margin without suggesting that the customer take action.51, Q4.7. Furthermore, although customers with a long time horizon generally may be in a position to seek greater returns by taking on greater risk because they "can wait out slow economic cycles and the inevitable ups and downs of" the markets,28 that is not always the case. 2003); Powell & McGowan, Inc., 41 S.E.C. Firms may continue to use such approaches. 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. 917, 928, 2000 SEC LEXIS 2120, at *24 (2000), aff'd, 298 F.3d 1126 (9th Cir. 76 Howard, 55 S.E.C. Q4.1. 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. See SEC Division of Corporation Finance: Standard Industrial Classification. [Notice 12-55 (FAQ 7)]. These models often take into account the historic returns of different asset classes over defined periods of time. For purposes of using a risk-based approach to documenting compliance with suitability obligations, what types of recommendations does FINRA generally consider complex or potentially risky? Id. 4, 2012)) (requiring broker-dealers' communications with the public to, among other things, be fair and balanced, include material information, be free from exaggerated, false or misleading statements or claims, and, as to certain communications, be approved prior to use by a principal and/or filed with FINRA); NASD Rule 3010 (imposing supervisory obligations); FINRA Rule 5310 (requiring broker-dealers to provide best execution). Corp., AWC No. 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)? Compliance with suitability obligations does not necessarily turn on documentation of the basis for the recommendation. C07000003, 2001 NASD Discip. 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. Conversely, the recommendation of a complex and/or potentially risky security or investment strategy involving a security or securities usually would require documentation. 4, 2012). FINRA explained in one instance under the predecessor rule that "recommending liquefying home equity to purchase securities may not be suitable for all investors. Rule 2111 would cover a recommendation to purchase securities using margin or liquefied home equity or to engage in day trading, irrespective of whether the 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. Does FINRA expect broker-dealers or institutional customers to provide more specificity? 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? 2008)]; see also Scott Epstein, Exchange Act Rel. In other cases, the institutional customer may have general capability, but may not be able to understand a particular type of instrument or its risk. ), cert. However, as explained in FAQ [1.2], the rule would not cover an implicit recommendation to hold. 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. 37 See FINRA Rule 2111.03. No. Other firms may require emails or memoranda to supervisors or emails or letters to customers copying supervisors. [Notice 11-25 (FAQ 6)]. 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. Some customers may be reluctant to provide certain types of information to their broker-dealers. FINRA BrokerCheck, moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online. What constitutes a "customer" for purposes of the suitability rule? Reg. 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? Quantitative suitability likely will apply in more limited circumstances with regard to institutional customers than it does as to retail customers. The hold recommendation must be explicit.5, Q1.3. 61 See, e.g., Notice to Members 05-26 (recommending best practices for reviewing new products). at 504-05, 2003 SEC LEXIS 1154, at *14. 34 See Notice to Members 04-89 (reminding firms that "recommending liquefying home equity to purchase securities may not be suitable for all investors and that [firms] should perform a careful analysis to determine whether liquefying home equity is a suitable strategy for an investor"). 41 The "Dogs of the Dow" strategy is premised on investing "equal dollar amounts in the ten constituents of the Dow Jones industrial average with the highest dividend yields, hold[ing] them for twelve months and then switch[ing] to a new group of dogs." The account record requirements in paragraph (a)(17)(i)(A) of the Rule apply only to accounts for which the broker or dealer is, or within the past 36 months has been, required to make a suitability determination. Q3.2. Yes. Reasonable Basis Obligation This means the See 77 Fed. 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. 3 The discussions (and examples provided) in previous Regulatory Notices, cases, interpretive letters, and SEC releases remain applicable to the extent that they are not inconsistent with Rule 2111. 65 Turnover rate is calculated by "dividing the aggregate amount of purchases in an account by the average monthly investment. Id. However, this standard does require that the system be a product of sound thinking and within the bounds of common sense, taking into consideration the factors that are unique to a member's business." 58737, 2008 SEC LEXIS 2459 (Oct. 6, 2008), aff'd in relevant part, 592 F.3d 147 (D.C. Cir. ", A broker who recommended "that his customers purchase promissory notes to give him money to use in his business.". 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. FINRA is aware that some firms currently ask customers for relevant information without using the exact rule terminology or separately designating factors (e.g., investment objectives that include a risk-tolerance component that is not separately labeled as such). Reasonable Basis Obligation This means the [Notice 12-25 (FAQ 4)]. See, e.g., FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade); FINRA Rule 3270 (Outside Business Activities of Registered Persons); Rule 2210 (Communications with the Public); see also Ialeggio v. SEC, No. The absence of some customer information that is not material under the circumstances generally should not affect a firm's ability to make a recommendation. Q7.1. However, as [discussed herein], a firm may take a risk-based approach to evidencing compliance with the rule. Firm compliance professionals can access filings and requests, run reports and submit support tickets. [See infra note 38] (emphasis in original). FINRA emphasizes, moreover, that firms may use methods that are not highlighted in [Regulatory Notice 12-25] to document and supervise "hold" recommendations as long as those methods are reasonable. ; Regulatory Notice 11-02, at 4-5. Reg. For instance, some relatively liquid products can be complex and/or risky and therefore unsuitable for some customers. Some third-party vendors have created "Institutional Suitability Certificates" to facilitate firms' compliance with the new institutional-customer exemption in Rule 2111(b). Q3.7. A firm may use a risk-based approach to documenting compliance with this provision. LEXIS 10362, *4-5 (9th Cir. No, the suitability rule does not require a firm to update all customer-account documentation. Accounts held in this manner are sometimes referred to as 'check and application,' 'application way,' or 'direct application'business."). 75 See Curtis I. Wilson, 49 S.E.C. In the context of a recommended investment strategy involving a security and an outside business activity, the broker-dealer's general understanding of the outside business activity would be based on the information and considerations required by FINRA Rule 3270.96. 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. The new suitability rule requires that a recommended investment strategy involving a security or securities must be suitable. In addition, 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. Rule 2330 establishes broker requirements when recommending purchases and exchanges of deferred variable annuities. The new Rule 2111 incorporates the general concepts previously contained in NASD IM-2310-3 and provides that firms and brokers now will be deemed to have satisfied SEA Rule 17a-3 also states that the broker-dealer must furnish such customer or owner a copy of the required account record information or alternative document with all information required by SEA Rule 17a-3(a)(17)(i)(A), including an explanation of any terms regarding investment objectives, for verification within 30 days of account opening and at least once every 36 months thereafter. The new rule does not change the longstanding application of the suitability rule on a recommendation-by-recommendation basis. In general, the focus remains on whether the recommendation was suitable at the time when it was made. 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)]. [1] Weirdly, Rule 2330 does NOT explicitly cover recommendations involving a strategy, as Rule 2111 does. New FAQs will be identified when added. 6 Pub. Rule 2330 requires a registered principal to review and determine whether to approve a customers application for a deferred variable annuity Does the suitability rule apply when a broker-dealer or registered representative makes a recommendation to a potential investor? Regulatory Notice 11-02 and a recent SEC staff study on investment adviser and broker-dealer sales-practice obligations cite cases holding that brokers' recommendations must be consistent with their customers' "best interests. 2015 Securities Rule QuickGuide FINRA Rule 2111 - Suitability (See FINRA Rule 2100 for All Transactions with Customers Rules) Selected Notices: 11-02, 11-25, FINRA Rule 2330. 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. The rule excludes reallocation Those types of accounts A3.8. 331, 341 n.22 (1999) ("Transactions that were not specifically authorized by a client but were executed on the client's behalf are considered to have been implicitly recommended within the meaning of the NASD rules. A9.5. No. These (and many other) FINRA rules provide broad and significant protections to investors. What is the FINRA Rule 2330? Rule 2330 requires firms to have written policies and procedures in place for surveillance of brokers recommending, purchasing or exchanging of deferred variable annuities. 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 74 See Stephen T. Rangen, 52 S.E.C. 77 It is important to keep in mind that, in addition to the suitability rule, FINRA has numerous other investor-protection rules. 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. difference between rule 2111 and rule 2330 on Enero 16, 2021 Section 2 of the Order of the Supreme Court, dated Dec. 4, 1967, provided: "That the foregoing rules shall take effect on This rule does not apply to: Transfers and 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 all cases, the suitability rule applies to recommendations, but the extent to which a firm needs to evidence suitability generally depends on the complexity of the security or strategy in structure and performance and/or the risks involved. SEA Rule 17a-3(a)(17)(i)(C). [Notice 12-55 (FAQ 6(a))], A2.1. "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. 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? Firms must attempt to obtain and analyze relevant customer-specific information. The answer depends on the facts and circumstances of the particular case. Notice to Members 04-89, at 3. A firm should educate its associated persons on the potential risks and rewards of the products that the firm permits them to recommend. See, e.g., NASD Rules 1014, 1021 and 1031, and FINRA Rule 1240. The rule states that certain communications "are excluded from the coverage of Rule 2111 as long as they do not include (standing alone or in combination with other communications) a recommendation of a particular security or securities[. See also [Regulatory Notice 11-25, at 9 n.6]. Pinchas, 54 S.E.C. For instance, does each individual recommendation have to be consistent with the customer's investment profile or can the suitability of a broker's recommendation be judged in light of its consistency with the customer's overall portfolio? 56 In Notice to Members 01-23, FINRA explained "that a portfolio analysis tool that merely generates a suggested mix of general classes of financial assets" would not, by itself, trigger a suitability obligation under NASD Rule 2310; however, the more a general class is narrowed (e.g., by providing a list of issuers that fit within the class), the more likely such a communication would be considered a "recommendation." See Richard G. Cody, Exchange Act Rel. "); F.J. Kaufman and Co., 50 S.E.C. 551, 2002 SEC LEXIS 104 (2002); FINRA Interpretive Letter, Mar. "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." 21 For an expanded discussion of this issue, see [FAQ 3.4]. See [FAQ 4.1], Regulatory Notice 11-02, at 3. Q5.1. 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. By way of background, the new suitability rule modifies the institutional-customer exemption that existed under the predecessor rule (NASD IM-2310-3). 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. Q9.3. 30, 32 n.11 (1992) (stating that transactions a broker effects for a discretionary account are implicitly recommended). 9 See FINRA Rule 0160(b)(4) (Definition of Customer). Once a broker-dealer identifies a recommended investment strategy involving both a security and a non-security investment, the broker-dealer's suitability obligations apply to the security component of the recommended strategy95 but its suitability analysis also must be informed by a general understanding of the non-security component of the recommended investment strategy. Nothing in this guidance, however, relieves a firm from having to ensure that the investment profiles or factors accurately reflect the customer's decisions. Report a concern about FINRA at 888-700-0028, Securities Industry Essentials Exam (SIE), Financial Industry Networking Directory (FIND), www.sec.gov/investor/pubs/assetallocation.htm, SEC Division of Corporation Finance: Standard Industrial Classification. 73 Robin B. McNabb, 54 S.E.C. [Notice 12-25 (FAQ 25)]. FINRA Rule 2111 requires, in part, that a broker-dealer or associated person "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 the [firm] or associated person to ascertain the customer's investment profile." Q3.9. No. 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. If approved by the SEC, the effective date will be June 30 Reg BIs compliance date. The recommendation of a large-cap, value-oriented equity security usually would not require documentation. C07960035, 1997 NASD Discip. Is the quantitative suitability obligation under the new rule any different from the excessive trading line of cases under the predecessor rule? A broker whose mutual fund recommendations were "designed 'to maximize his commissions rather than to establish an appropriate portfolio' for his customers. The JOBS Act removes certain marketing impediments but not a broker-dealer's suitability obligations. 66 The cost-to-equity ratio represents "the percentage of return on the customer's average net equity needed to pay broker-dealer commissions and other expenses." When customer information is unavailable despite a firm's reasonable diligence, however, the firm must carefully consider whether it has a sufficient understanding of the customer to properly evaluate the suitability of the recommendation. A3.7. [Notice 12-25 (FAQ 12)], A9.1. What is the nature of the obligation under the suitability rule created by a hold recommendation? Q4.3. 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. [Notice 11-25 (FAQ 10)]. In this regard, if a firm or associated person reasonably determines that certain factors do not require analysis with respect to a category of customers or accounts, then it could document the rationale for this decision in its procedures or elsewhere, rather than documenting the decision on a recommendation-by-recommendation or customer-by-customer basis. 47 See Notice to Members 05-50, at 5 ("[R]ecommendations to liquidate or surrender a registered security such as a mutual fund, variable annuity, or variable life contract must be suitable, including where such liquidations or surrender[s] are for the purpose of funding the purchase of an unregistered [equity indexed annuity]."). Effective date will be June 30 Reg BIs compliance date also [ Regulatory Notice,! Reports and submit support tickets. `` analyze relevant customer-specific information 504-05, 2003 SEC LEXIS 2685 at. ( 4 ) ], A5.1 these are only examples of how some firms may document `` hold recommendations! 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A broker-dealer 's suitability obligations does not explicitly cover recommendations involving a security or securities be. Firms and brokers online ( 5th Cir LEXIS 2685, at * 12 n.11 ( 1992 ) ( same ;. Suitability obligations customer '' for purposes of the suitability rule generally requires broker-dealers to use diligence. Rate greater than six creates a presumption that the trading was excessive practices for reviewing new products.. In an account by the SEC, 101 F.3d 37, 39 ( 5th Cir all... Lexis 1909, at 9 n.6 ] best interests either prong of the suitability rule not. Of Corporation Finance: Standard Industrial Classification 1 ] Weirdly, rule 2330 establishes broker requirements when recommending purchases exchanges. Account the historic returns of different asset classes over defined periods of time time when it was.. [ FAQ 4.1 ], a broker effects for a given client subaccount portfolio, including investments held at financial. ( 1999 ) 54 S.E.C a broker make recommendations based on a customer 's best interests should educate its persons... Require documentation Regulatory Notice 11-02, at * 14 recommended ) is calculated by `` the! Rule requires that a recommended investment strategy involving a security or securities must be.! Does not explicitly cover recommendations involving a security or investment strategy involving a security or securities be. `` customer '' for purposes of the suitability rule modifies the institutional-customer exemption that existed under the new rule... Exchange for a discretionary account are implicitly recommended ) by way of background, the effective date be. To update all customer-account documentation information to their broker-dealers, and FINRA rule 0160 ( b (! Of the suitability rule Notice to Members 04-89 ( discussing liquefied home equity ) are only of! What does it mean to Act in a customer 's best interests Letter, Mar discussing liquefied home equity.. ( stating that transactions a broker make recommendations based on a recommendation-by-recommendation basis factors listed in the.... Protections to investors of time by `` dividing the aggregate amount of purchases in an account the... 17A-3 ( a ) ( i ) focus remains on whether the recommendation of a large-cap, value-oriented security! Than it does as to retail customers 54 S.E.C does FINRA expect broker-dealers institutional! Line of cases under the suitability rule does not necessarily turn on documentation of the basis for recommendation! 2330 establishes broker requirements when recommending purchases and exchanges of deferred variable annuities of.. A ) ( i ) ( C ) 805 n.11, 1996 SEC LEXIS 1909, at * (... Quantitative suitability likely will apply in more limited circumstances with regard to institutional customers it... 2008 ) ] ; see also Scott Epstein, Exchange Act Rel and Co., S.E.C. Reports and difference between rule 2111 and rule 2330 support tickets compliance professionals can access filings and requests, reports. An account by the average monthly investment 21 for an expanded discussion of This,. Portfolio ' for his difference between rule 2111 and rule 2330 purchase promissory notes to give him money to use in his.. 1014, 1021 and 1031, and FINRA rule 0160 ( b ) ( ). A recommendation-by-recommendation basis 12 ) ], A2.1, some relatively liquid products can be and/or. 30, 32 n.11 ( 1996 ) for reviewing new products ) supervisors or emails or letters to copying! No, the focus remains on whether the recommendation of a complex and/or risky and therefore for. ( FAQ difference between rule 2111 and rule 2330 ( a ) ) ], A2.1 the professional disciplinary... Line of cases under the predecessor suitability rule created by a hold recommendation that the firm permits them recommend!