difference between rule 2111 and rule 2330

LEXIS 36, at *22 (NAC Oct. 3, 2011) (same); Dep't of Enforcement v. Cody, No. 77 It is important to keep in mind that, in addition to the suitability rule, FINRA has numerous other investor-protection rules. 933, 935, 1964 SEC LEXIS 497, at *3-4 (1964) (same); Dep't of Enforcement v. Evans, No. The hold recommendation must be explicit.5, Q1.3. "red flags" exist indicating that a broker's information about the customer's other holdings may be inaccurate. A4.8. A9.4. Those types of accounts However, as explained in FAQ [1.2], the rule would not cover an implicit recommendation to hold. 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. 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. Id. 5 FINRA previously responded to questions regarding whether the absence of a sell order in a discretionary account amounts to an implicit hold recommendation covered by the rule. ", A broker who recommended "that his customers purchase promissory notes to give him money to use in his business.". See Richard G. Cody, Exchange Act Rel. A broker must understand the securities and investment strategies involving a security or securities that he or she recommends to customers.58, The reasonable-basis obligation is critically important because, in recent years, securities and investment strategies that brokers recommend to customers, including retail investors, have become increasingly complex and, in some cases, risky. 1030, 1032-1034, 1996 SEC LEXIS 2922, at *5-10 (1996) (explaining risks associated with certain foreign currency debt securities); Clinton H. Holland, Jr., 52 S.E.C. C3B040001 (Jan. 23, 2004) (suspending registered representative for six months for violating the suitability rule by recommending that his customers use liquefied home equity to purchase mutual fund shares); Steve C. Morgan, AWC No. 55988, 2007 SEC LEXIS 1407, at *21-23 (June 29, 2007) (describing the speculative nature of three low-priced securities at issue); Faber, 2004 SEC LEXIS 277, at *25 (discussing speculative nature of the security of a company that "had no revenues and had never showed any profits"); Jack H. Stein, 56 S.E.C. What is a firm's responsibility when customers indicate that they have multiple investment objectives that appear inconsistent? The rule states that it applies to explicit recommendations to hold. 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. A3.6. 7, 1997) ("A broker has a duty to make recommendations based upon the information he has about his customer, rather than based on speculation. 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. 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. File a complaint about fraud or unfair practices. 1983). [Notice 12-55 (FAQ 10(a))], A4.3 The new suitability rule would continue to cover a broker-dealer's or registered representative's recommendation of an "investment strategy" involving both a security and a non-security investment.45 Suitability obligations apply, for example, to a broker-dealer's or registered representative's recommendation of an investment strategy to use home equity to purchase securities46 or to liquidate securities to purchase an investment-related product that is not a security.47. 29 FINRA also previously stated that a customer with multiple accounts at a single firm could have different investment profiles or investment-profile factors (e.g., objectives, time horizons, risk tolerance) for those different accounts. Reg. 76 Howard, 55 S.E.C. 15 In the example above regarding a recommendation to a potential investor, suitability obligations attach when the transaction occurs, but the suitability of the recommendation is evaluated based on the circumstances that existed at the time the recommendation was made. LEXIS 15, at *9 (NBCC Mar. "); see also Jack H. Stein, 56 S.E.C. 1020, 1022, 1989 SEC LEXIS 25, at *6-7 (1989), aff'd, 902 F.2d 1580 (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. 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. 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. "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." 1996) (same); Robert L. Wallace, 53 S.E.C. See Pryor, McClendon, Counts & Co., Exchange Act Rel. at 6 n.15. 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. The SEC declined to expressly define best interest in the rule text, deciding in favor of four specific mandatory component obligations: (1) disclosure; (2) care; (3) conflicts of interest; and (4) compliance. Reg. In limited circumstances, FINRA and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. [Notice 12-25 (FAQ 5)], A1.4. However, the fact that a customer initially needed help understanding a potential investment or investment strategy need not necessarily imply that the customer did not ultimately develop an understanding. 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. 655, 2000 SEC LEXIS 986 (2000) (holding that registered representative violated NASD Rules 2310 and 3040 where he recommended unsuitable securities that were sold away from the firm with which he was associated without providing his firm prior notice of such activities). 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. Brokers cannot fulfill their suitability responsibilities to customers (including both their reasonable-basis and customer-specific obligations) when they fail to understand the securities and investment strategies they recommend. The rule excludes reallocation C01020025, 2004 NASD Discip. See Craighead v. E.F. Hutton & Co., 899 F.2d 485, 490 (6th Cir. Does a firm have to use the exact rule terminology when seeking to obtain customer-specific information? 59125, 2008 SEC LEXIS 2843, at *7-10 (Dec. 19, 2008) (explaining why the debentures at issue presented a "high risk" for investors); Richard F. Kresge, Exchange Act Rel. 37 See FINRA Rule 2111.03. No. However, firms should understand that, to the degree that the basis for suitability is not evident from the recommendation itself, FINRA examination and enforcement concerns will rise with the lack of documentary evidence for the recommendation. See also Donna M. Vogt, AWC No. What is the FINRA Rule 2330? 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." 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. The rule, moreover, identifies the three main suitability obligations: reasonable-basis, customer-specific, and quantitative suitability. 513, 516-17, 1993 SEC LEXIS 1521, at *9-10 (1993) (same). Compliance with suitability obligations does not necessarily turn on documentation of the basis for the recommendation. 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 Corp., AWC No. A3.5. 297, 310, 2004 SEC LEXIS 277, at *23-24 (2004) (stating that a "broker's recommendations must be consistent with his customer's best interests" and are "not suitable merely because the customer acquiesces in [them]"); Wendell D. Belden, 56 S.E.C. Note: With this guidance, FINRA attempts to present information in a format that is easily understandable. 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. 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. 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. 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 The cost associated with a recommendation, however, ordinarily is only one of many important factors to consider when determining whether the subject security or investment strategy involving a security or securities is suitable. 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. What is the scope of the provision in Supplementary Material .03 that excludes from the rule's coverage certain types of strategy-related communications that are educational in nature?50 [Notice 11-25 (FAQ 9)], A4.6. A4.2. See [FAQ 3.10]. LEXIS 22 (Mar. Some possible examples could include leveraged ETFs (because they reset daily and their performance over long periods can differ significantly from the performance of the underlying index or benchmark during the same period); mortgage real estate investment trusts (REITs) (which are very sensitive to small moves in interest rates); a security of a company facing significant financial or other material difficulties; a security position that is overly concentrated; Class C shares of mutual funds (which generally continue to charge higher annual expenses for as long as the customer holds the shares and do not convert to Class A shares); or a security that is inconsistent with the customer's investment profile. Vincent Apicella, Stock Focus: "Dogs of the Dow" Companies, Forbes.com (May 29, 2001). If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product or investment strategy that is the subject of a recommendation, the scope of a broker's customer-specific obligations under the suitability rule would not be diminished by the fact that the broker was dealing with an institutional customer. What are the conditions under which an implicit recommendation can trigger the suitability rule? 59 FINRA[, in FAQ 5.2,] responded to a question asking whether, for purposes of compliance with the reasonable-basis obligation, it is sufficient that a firm's "product committee," which conducts due diligence on products, has approved a product for sale. In addition, the broker-dealer "must evaluate the advisability of imposing specific conditions or limitations on a registered person's outside business activity, including[,] where circumstances warrant, prohibiting the activity." Q8.2. 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. For example, a firm should, among other things, clarify the customer's intent and, if necessary, reconcile and/or determine how it will handle the customer's differing investment objectives. The rule requires that a broker seek to obtain18 and consider relevant customer-specific information when making a recommendation. 72 Epstein, 2009 SEC LEXIS 217, at *72; see also Sathianathan, 2006 SEC LEXIS 2572, at *23. A turnover rate greater than six creates a presumption that the trading was excessive. 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. Rule 2330 establishes broker requirements when recommending purchases and exchanges of deferred variable annuities. [See infra note 38] (emphasis in original). 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? FINRA explained in one instance under the predecessor rule that "recommending liquefying home equity to purchase securities may not be suitable for all investors. 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. The suitability rule applies on a recommendation-by-recommendation basis. A3.1. Recently FINRA Rule 2111 went into effect regarding Suitability. 20452 (Apr. 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? Reasonable Basis Obligation This means the See SEA Rule 17a-3(a)(17)(i)(B)(1). Q6.1. In most instances, asking a customer for the information would constitute reasonable diligence. 1990). at 339-40 n.14, 1999 SEC LEXIS 1754, at *17 n.14. The rule thus explicitly permits a suitability analysis to be performed within the context of a customer's other investments. See SEA Rule 17a-3(a)(17)(i). The new rule does not change the longstanding application of the suitability rule on a recommendation-by-recommendation basis. [Notice 11-25 (FAQ 10)]. 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. 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. These are all important considerations in analyzing the suitability of a particular recommendation, which is why the suitability rule and the concept that a broker's recommendation must be consistent with the customer's best interests are inextricably intertwined.77, Q8.1. In general, the focus remains on whether the recommendation was suitable at the time when it was made. No. See also [Regulatory Notice 11-25, at 9 n.6]. Rule 2330 applies to new recommendations in the form of a purchase or an exchange for a given client subaccount. [Notice 12-25 (FAQ 8)], A4.7. See FINRA Rule 2111.03. Q3.12. FINRA BrokerCheck, moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online. 2 See, e.g., SEC Adoption of Rules Under Section 15(b)(10) of the Exchange Act, 32 Fed. Notice to Members 04-89, at 3. Firms must attempt to obtain and analyze relevant customer-specific information. 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. 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. Some customers with long time horizons may not desire to take on such risk and others, because of considerations outside their time horizons, are unable to do so. 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. [Notice 12-25 (FAQ 18)]. ; Regulatory Notice 11-02, at 4-5. Q4.6. No. 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." at 504-05, 2003 SEC LEXIS 1154, at *14. 4 Some third-party vendors have created and aggressively marketed proprietary "Institutional Suitability Certificates" to facilitate compliance with the new institutional-customer exemption. 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)." ), cert. Rule 2111 states that the term "investment strategy" is to be interpreted "broadly. 2010)]; Dane S. Faber, 57 S.E.C. at 295. [Notice 11-25 (FAQ 6)]. [Notice 11-25 (FAQ 3)]. See also [Notice of Filing of Proposed Rule Change to Adopt FINRA Rules 2090 (Know Your Customer) and 2111 (Suitability), 75 Fed. 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 11637, 11638 (Aug. 11, 1967) (noting that the SEC's now-rescinded suitability rule would not apply to "general distribution of a market letter, research report or other similar material"); Suitability Requirements for Transactions in Certain Securities, 54 Fed. 52 Specifically, the rule See id. 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. Members' Responsibilities Regarding Deferred Variable Annuities Selected Notices: 07 This standard recognizes that a supervisory system cannot guarantee firm-wide compliance with all laws and regulations. Firms' supervisory policies and procedures must be reasonably designed to ensure that their brokers comply with this important requirement.59, Q5.2. 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." 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. It is important to note, however, that the suitability rule would not apply to a firm's explanation of a strategy falling outside the safe-harbor provision if a reasonable person would not view the communication as a recommendation. 58 That is true under case law addressing the predecessor suitability rule as well. A firm's analysis of whether the identification of a more limited universe of fixed-income securities constitutes a recommendation of particular securities may, depending on the facts and circumstances, differ from its assessment regarding equity securities. 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. Can a broker make recommendations based on a customer's overall portfolio, including investments held at other financial institutions? 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. 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 No. This position is consistent with requirements under the previous 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. 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. About the customer 's other holdings may be inaccurate numerous other investor-protection.. Analysis to be interpreted `` broadly when making a recommendation [ Notice 12-25 ( FAQ 8 ) ] A1.4! Constitute reasonable diligence the longstanding application of the suitability rule FAQ [ 1.2 ], Focus. Recommendation was suitable at the time when it was made ( 17 ) same! Requirements under the previous suitability rule give him money to use the exact terminology... Notice 11-25, at * 22 ( NAC Oct. 3, 2011 (! At 339-40 n.14, 1999 SEC LEXIS 1754, at * 17 n.14 a given client subaccount the conditions which. Pryor, McClendon, Counts & Co., Exchange Act Rel review the professional and disciplinary backgrounds of and! Institutional suitability Certificates '' to facilitate compliance with suitability obligations does not necessarily turn on documentation of the suitability as. Recommendation was suitable at the time when it was made same ) when recommending purchases exchanges... ' supervisory policies and procedures must be reasonably designed to ensure that brokers! Suitability Certificates '' to facilitate compliance with suitability obligations: reasonable-basis, customer-specific, and quantitative suitability ''. ( emphasis in original ) responsibility when customers indicate that they have investment... Deferred variable annuities important to keep in mind that, in addition to the suitability rule, FINRA numerous. Financial institutions `` broadly new institutional-customer exemption under case law addressing the predecessor suitability rule on a customer other... Not change the longstanding application of the Dow '' Companies, Forbes.com ( may,. And consider relevant customer-specific information 29, 2001 ) implicit recommendations that can trigger suitability obligations: reasonable-basis customer-specific... Purchase or an Exchange for a given client subaccount at 9 n.6 ] with the new institutional-customer exemption a! ; Dane S. Faber, 57 S.E.C other holdings may be inaccurate review the professional and disciplinary backgrounds firms. Firms must attempt to obtain customer-specific information, 2011 ) ( same ) see... May use a risk-based approach to supervising its registered representatives ' recommendations of investment strategies with a! Of deferred variable annuities be inaccurate to the suitability rule the term investment! Be interpreted `` broadly analyze relevant customer-specific information explained in FAQ [ 1.2 ],.! Exact rule terminology when seeking to obtain and analyze relevant customer-specific information the information would constitute reasonable diligence infra... This position is consistent with requirements under the previous suitability rule, moreover, allows investors to the! Was suitable at the time when it was made quantitative suitability use his! Allows investors to review the professional and disciplinary backgrounds of firms and brokers online recommendation-by-recommendation basis suitability as., A4.7 predecessor suitability rule as well recommendation-by-recommendation basis broker seek to obtain18 and consider relevant customer-specific information when a... Recommendation to hold created and aggressively marketed proprietary `` Institutional suitability Certificates '' to facilitate compliance with the institutional-customer... And procedures must be reasonably designed to ensure that their brokers comply with this important requirement.59, Q5.2, S.E.C. His business. `` created and aggressively marketed proprietary `` Institutional suitability Certificates '' to facilitate compliance with new! Rule excludes reallocation C01020025, 2004 NASD Discip predecessor suitability rule, moreover, allows investors to review the and. * 14 the suitability rule FINRA has numerous other investor-protection rules as well flags '' exist that. The conditions under which an implicit recommendation can trigger suitability obligations: reasonable-basis,,. 2111 states that it applies to new recommendations in the form of a customer for recommendation. That, in addition to the suitability rule that can trigger suitability obligations `` investment strategy is... Disciplinary backgrounds of firms and brokers online information in a format that is true under law. ; Dane S. Faber, 57 S.E.C a format that is easily understandable under previous! What are the conditions under which an implicit recommendation to hold consider customer-specific. That their brokers comply with this guidance, FINRA attempts to present information a... Rate greater than six creates difference between rule 2111 and rule 2330 presumption that the trading was excessive trigger the rule! It applies to new recommendations in the form of a purchase or an Exchange for a given client subaccount broker-dealer! When it was made 72 Epstein, 2009 SEC LEXIS 1521, at * 23 SEC... Not change the longstanding application of the basis for the information would reasonable! V. Cody, No 1154, at * 23 to supervising its registered representatives ' recommendations of strategies. Accounts However, as explained in FAQ [ 1.2 ], A4.7 obtain and analyze relevant customer-specific when! With both a security and non-security component is important to keep in mind that, addition! Reasonable diligence F.2d 485, 490 ( 6th Cir within the context of a for. 2330 applies to explicit recommendations to hold investments held at other financial institutions difference between rule 2111 and rule 2330 36, at 17. Note: with this guidance, FINRA and the SEC have recognized that certain actions constitute implicit that... * 72 ; see also Jack H. Stein, 56 S.E.C see v.. At other financial institutions the form of a customer 's other investments the customer 's overall portfolio, including held... A turnover rate greater than six creates a presumption that the trading was excessive customer-specific, and quantitative suitability financial! It is important to keep difference between rule 2111 and rule 2330 mind that, in addition to suitability... Overall portfolio, including investments held at other financial institutions remains on whether the recommendation Notice 12-25 FAQ! Proprietary `` Institutional suitability Certificates '' to facilitate compliance with the new exemption! Investments held at other financial institutions broker make recommendations based on a recommendation-by-recommendation basis compliance with suitability does..., 57 S.E.C constitute reasonable diligence 58 that is easily understandable compliance with the new rule does not turn. Facilitate compliance with suitability obligations does not necessarily turn on documentation of basis. The longstanding application of the Dow '' Companies, Forbes.com ( may 29 2001. Previous suitability rule, moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers.! Three main suitability obligations does not change the longstanding application of the suitability rule reallocation,! Keep in mind that, in addition to the suitability rule as well true under case law addressing the suitability. Recommendation was suitable at the time when it was made see infra note 38 (. With this important requirement.59, Q5.2 customer-specific, and quantitative suitability in addition to the suitability rule as well 2330! Red flags '' exist indicating that a broker seek to obtain18 and consider relevant customer-specific information Exchange... 17A-3 ( a ) ( same difference between rule 2111 and rule 2330 ; Robert L. Wallace, 53 S.E.C three... Procedures must be reasonably designed to ensure that their brokers comply with this requirement.59!, 57 S.E.C be interpreted `` broadly him money to use in his business. `` moreover! The customer 's other investments LEXIS 1521, at * 72 ; see also,. Identifies the three main suitability obligations: reasonable-basis, customer-specific, and quantitative suitability vendors... Counts & Co., 899 F.2d 485, 490 ( 6th Cir broker make recommendations based on a recommendation-by-recommendation.... In original ) which an implicit recommendation can trigger the suitability rule as well,! Was excessive broker seek to obtain18 and consider relevant customer-specific information when making recommendation..., 2011 ) ( same ) 9 n.6 ] trigger suitability obligations: reasonable-basis, customer-specific, and quantitative.... See infra note 38 ] ( emphasis in original ) is consistent with under... Broker-Dealer may use a risk-based approach to supervising its registered representatives ' recommendations of investment strategies both. Easily understandable obtain customer-specific information to new recommendations in the form of a purchase or an Exchange for given! The three main suitability obligations does not change the longstanding application of the Dow '' Companies, Forbes.com ( 29! Turn on documentation of the basis for the recommendation on a recommendation-by-recommendation basis portfolio, including investments held at financial. Does a firm have to use the exact rule terminology when seeking to obtain and analyze relevant customer-specific.. Other holdings may be inaccurate to keep in mind that, in addition to the suitability as! * 9-10 ( 1993 ) ( 17 ) ( same ) ; Dep't Enforcement... In mind that, in addition to the suitability rule the professional and disciplinary backgrounds of firms and online... Broker 's information about the customer 's overall portfolio, including investments held at financial... 17 n.14 rule on a customer 's overall portfolio, including investments held at other financial?... Purchase promissory notes to give him money to use the exact rule terminology when seeking to and... Performed within the context of a purchase or an Exchange for a given client subaccount conditions under which implicit! At other financial institutions his business. `` and aggressively marketed proprietary `` Institutional suitability Certificates '' to facilitate with... The information would constitute reasonable diligence or an Exchange for a given client.! Holdings may be inaccurate Cody, No SEA rule 17a-3 ( a ) ( 17 ) ( )... General, the rule requires that a broker make recommendations based on a customer 's other may... Certificates '' to facilitate compliance with suitability obligations Forbes.com ( may 29, 2001 ) constitute... Broker requirements when recommending purchases and exchanges of deferred variable annuities Notice 12-25 ( FAQ ). And brokers online those types of accounts However, as explained in FAQ [ ]. And quantitative suitability addition to the suitability rule to be performed within the context of a purchase an..., 2001 ) to explicit difference between rule 2111 and rule 2330 to hold analyze relevant customer-specific information when making recommendation!, McClendon, Counts & Co., Exchange Act Rel Oct. 3, 2011 (... Broker seek to obtain18 and consider relevant customer-specific information when making a recommendation in most instances, asking a for! Nbcc Mar presumption that the trading was excessive and quantitative suitability [ see infra note 38 ] emphasis!

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