Additional Guidance on FINRA's Suitability Rule

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In May 2012, the Financial Industry Regulatory Authority provided guidance on Rule 2111 (Suitability) by providing answers to frequently asked questions (FAQs). Answers that supersede some of these FAQs and additional FAQs have been addressed in FINRA Regulatory Notice 12-55. The new material addresses the scope of the terms “customer” and “investment strategy.”

Specifically, the following questions have new answers:

  • What constitutes a “customer” for purposes of the suitability rule?
  • The new suitability rule requires that a recommended investment strategy involving security or securities must be suitable. Can you provide some examples of what would and would not be considered an “investment strategy” under the rule?
  • Does the new rule’s “investment strategy” language cover a registered representative’s recommendation involving both a security and a non-security investment?

In addition, the following are new FAQs:

  • Does the suitability rule apply when a broker-dealer or registered representative makes a recommendation to a potential investor?
  • What are a broker-dealer’s supervisory responsibilities for a registered representative’s recommendation of an investment strategy involving both a security and a non-security investment?

Regulatory Notice 12-55 also notes that FINRA has created a suitability web page that locates in one place questions and answers regarding FINRA Rule 2111.

Click here for Regulatory Notice 12-55. Click here for FINRA’s suitability web page.

 

Topics:  Broker-Dealer, FINRA, Investment Adviser, Suitability Rule

Published In: Administrative Agency Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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