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. Q3.12. "68 What does it mean to act in a customer's best interests? other "red flags" exist indicating that the customer information may be inaccurate. 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? Some customers may be reluctant to provide certain types of information to their broker-dealers. 37 See FINRA Rule 2111.03. 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. [Notice 12-25 (FAQ 2)], A1.1. 77 It is important to keep in mind that, in addition to the suitability rule, FINRA has numerous other investor-protection rules. In many circumstances, the answer is yes. 6 Pub. 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. 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. 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). That includes requiring a reasonable belief that the customer has In many ways this rule is very similar to FINRA Rule 2330 which relates to variable annuity Rule 2111(b) replaces the previous rule's definition of "institutional customer" with the more common definition of "institutional account" in FINRA's "books and records" rule, Rule 4512(c).78 "Institutional account" means the account of a bank, savings and loan association, insurance company, registered investment company, registered investment adviser or any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million.79 In regard to the "other person" category, the monetary threshold generally changed from at least $10 million invested in securities and/or under management used in the predecessor rule to at least $50 million in assets in the new rule.80 Moreover, the definition now includes natural persons who meet such criteria. 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. No. The rule thus explicitly permits a suitability analysis to be performed within the context of a customer's other investments. A turnover rate greater than six creates a presumption that the trading was excessive. 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. Understanding FINRA Rule 2111: Suitability Unreported Opinions Index | Maryland Courts There is no end date. 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. 82 FINRA Rule 2111(b). 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. Does the suitability rule apply when a broker-dealer or registered representative makes a recommendation to a potential investor? In general, a customer's investment profile would include the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs and risk tolerance. 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)? Would a broker, for example, be responsible for a hold recommendation involving blue chip stocks that a customer transferred into an account at the broker-dealer? Some customers, moreover, desire portfolios made up of securities with different levels of liquidity, risk and time horizons. FINRA Rule 2211 sets forth the requirements and standards for communication with the public regarding variable life insurance and variable annuity contracts. 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. By way of background, the new suitability rule modifies the institutional-customer exemption that existed under the predecessor rule (NASD IM-2310-3). 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. [Notice 12-55 (FAQ 10(b)]. Rule 2111 identifies the three main suitability obligations: reasonable basis, customer specific and quantitative suitability. "); Paul C. Kettler, 51 S.E.C. No. What types of "hold" recommendations should firms consider documenting? Does a broker-dealer have to seek to obtain all of the customer-specific factors listed in the new rule by the rule's implementation date? 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. What further action a broker-dealer will need to take will depend on the facts and circumstances of the particular case. 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. 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. C01020025, 2004 NASD Discip. Id. See, e.g., FINRA Rule 2010 (requiring that a broker-dealer, "in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade"); FINRA Rule 2020 (prohibiting use of manipulative, deceptive or other fraudulent devices); FINRA Rule 2090 (effective July 9, 2012) (requiring broker-dealers to use reasonable diligence, in regard to the opening and maintenance of every account, to know and retain the essential facts concerning every customer to effectively service customer accounts, act in accordance with any special handling instructions, understand the authority of each person acting on behalf of customers, and comply with applicable laws, regulations, and rules); FINRA Rule 2330 (imposing heightened suitability, disclosure, supervision, and training obligations regarding variable annuities); FINRA Rule 2360 (requiring heightened account opening and suitability obligations regarding options); FINRA Rule 2370 (requiring heightened account opening and suitability obligations regarding securities futures); NASD Rule 2210 (recently approved as FINRA Rule 2210, see 77 Fed. The new suitability rule requires that a recommended investment strategy involving a security or securities must be suitable. SEA Rule 17a-3(a)(17)(i)(C). 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. That is true regardless of whether the associated person previously recommended the purchase of the securities, the customer purchased them without a recommendation, or the customer transferred them into the account from another firm where the same or a different associated person had handled the account.38, Q4.2. Yes. 20 FINRA notes that there are SEC and other FINRA rules that explicitly require specific types of documentation. [Notice 11-25 (FAQ 8)], A4.4. 2005003188901, 2010 FINRA Discip. 35 For certain requirements related to day trading, see FINRA Rules 2130 and 2270. Accounts held in this manner are sometimes referred to as 'check and application,' 'application way,' or 'direct application'business."). Id. 70 See Epstein, 2009 SEC LEXIS 217, at *42 (stating that the broker's "mutual fund switch recommendations served his own interest by generating substantial production credits, but did not serve the interests of his customers" and emphasizing that the broker violated the suitability rule "when he put his own self-interest ahead of the interests of his customers"). 1096, 1100, 2002 SEC LEXIS 1909, at *5-6 (2002) (same), aff'd, 77 F. App'x 2 (1st Cir. 513, 516-17, 1993 SEC LEXIS 1521, at *9-10 (1993) (same). 21 For an expanded discussion of this issue, see [FAQ 3.4]. Some firms may create "hold" tickets and some may add "hold" sections to existing order tickets. ), cert. 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. Reasonable Basis Obligation This means the For "hold" recommendations, [as discussed below in FAQ 9.3,] a firm may want to focus on securities that by their nature or due to particular circumstances could be viewed as having a shorter-term investment component; that have a periodic reset or similar mechanism that could alter a product's character over time; that are particularly susceptible to changes in market conditions; or that are otherwise potentially risky or problematic to hold at the time the recommendations are made.89. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. No. 149, 153 & 156-157, 2003 SEC LEXIS 566, at *7-8 & *13 (2003) (discussing speculative nature of the security of "a start-up company whose business consisted of manufacturing and selling a single product" that was "new and had no established or tested market" and emphasizing the risks associated with overly concentrated securities positions); Larry I. Klein, 52 S.E.C. Q6.1. The new rule does not apply to implicit recommendations to hold. See SEA Rule 17a-3(a)(17)(i)(D). 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. A3.12. No. A8.1. 2 See, e.g., SEC Adoption of Rules Under Section 15(b)(10) of the Exchange Act, 32 Fed. No. File a complaint about fraud or unfair practices. How much of a duty does a firm have to pursue "any other information the customer may disclose" to see if it has suitability implications? 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. 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. 96 See also supra note [48] and discussion therein. [Notice 12-25 (FAQ 26)]. The answer depends on the facts and circumstances of the particular case. In this regard, firms should note that, as an allocation recommendation becomes narrower or more specific, the recommendation gets closer to becoming a recommendation of particular securities and, thus, subject to the suitability rule, depending on a variety of factors (including the number of issuers that fall within the broker-dealer's allocation recommendation).55 Accordingly, broker-dealers should assess whether allocation recommendations involving certain types of sub-categories of broader market sectors or even more limited groupings are so specific or narrow that they constitute recommendations of particular securities.56, Q4.8. Q4.6. For example, a firm may conclude that age is irrelevant regarding all customers that are entities or liquidity needs are irrelevant regarding all customers for whom only liquid securities will be recommended. A6.1. 91 Firms are reminded, however, that copies of all communications relating to their business as such and memoranda of brokerage orders are required to be preserved for three years. Yes. 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. What is a firm's responsibility when customers indicate that they have multiple investment objectives that appear inconsistent? [Notice 11-25 (FAQ 10)]. What is the scope of the term "strategy" as used in FINRA Rule 2111? 496, 503, 2003 SEC LEXIS 1154, at *10-11 (2003) ("As we have frequently pointed out, a broker's recommendations must be consistent with his customer's best interests. However, as explained in FAQ [1.2], the rule would not cover an implicit recommendation to hold. 33 For certain requirements related to margin, see FINRA Rule 2264. 57 FINRA Rule 2111.05(a). As with many obligations under various rules, a firm will need to make some judgment calls on the types of recommendations that it should document under FINRA's suitability rule. 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. Id. The rule expands the definition of what is a recommendation to include investment strategies and also expands the amount of information to be collected for each recommendation. "); see also Jack H. Stein, 56 S.E.C. 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. Quantitative suitability requires a broker who has actual or de facto control63 over a customer account to have a reasonable basis for believing that, in light of the customer's investment profile, a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer.64 Factors such as turnover rate,65 cost-to-equity ratio,66 and use of in-and-out trading67 in a customer's account may provide a basis for finding that the activity at issue was excessive. Numerous Regulatory Notices and cases discuss various types of complex and/or potentially risky securities and investment strategies involving a security or securities. Can you provide some examples of what would and would not be considered an "investment strategy" under the rule? Q9.3. 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." In addition, documentation by itself does not cure an otherwise unsuitable recommendation. 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[. "); F.J. Kaufman and Co., 50 S.E.C. The firm, however, also must consider factors such as the trust's investment objectives, time horizon and risk tolerance to complete the suitability analysis. 72 Epstein, 2009 SEC LEXIS 217, at *72; see also Sathianathan, 2006 SEC LEXIS 2572, at *23. 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. A4.8. [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. [Notice 11-25 (FAQ 4)]. [Notice 12-25 (FAQ 20)]. Dep't of Enforcement v. Siegel, No. 3333 (2010). 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. 83 See Regulatory Notice 11-02, at 8 n.24. 1 See, e.g., Regulatory Notice 11-02, at 2-3 (discussing FINRA's guiding principles that firms and brokers should consider when determining whether a particular communication could be considered a "recommendation" for purposes of the suitability rule); Regulatory Notice 10-06, at 3-4 (providing guidance on recommendations made on blogs and social networking websites); Notice to Members 01-23 (announcing the guiding principles and providing examples of communications that likely do and do not constitute recommendations); Michael F. Siegel, Exchange Act Rel. [Notice 12-25 (FAQ 13)], A9.2. 306 (2012). 55 When a broker-dealer recommends an allocation strategy that includes an allocation in fixed-income securities, FINRA recognizes that a number of additional factors would be relevant in determining if the broker-dealer has "recommended" particular debt securities. [Notice 12-55 (FAQ 6(b))], A2.2. 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. Other firms may require emails or memoranda to supervisors or emails or letters to customers copying supervisors. What is the scope of the safe-harbor provision in Rule 2111.03 regarding a firm's use of an asset allocation model? denied, 130 S.Ct. 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. See SEC Division of Corporation Finance: Standard Industrial Classification. 11 Regulatory Notice 08-35, at 2 (stating that direct participation programs (DPPs) and unlisted real estate investment trusts (REITs) are referred to as "investment programs"). 67 In-and-out trading refers to the "sale of all or part of a customer's portfolio, with the money reinvested in other securities, followed by the sale of the newly acquired securities." In its response to comments during the rulemaking process, however, FINRA noted that a broker-dealer "is free to decide as a business matter to service only those institutional investors that are willing to make the affirmative indication in terms of all potential transactions for its account. 2008015651901 (Dec. 15, 2011) (stating that "[r]everse convertibles are complex structured products that combine a debt instrument and put option into one product," the repayment of principal is linked to the performance of an underlying asset, such as a stock, a basket of stocks or an index, which is generally unrelated to the issuer of the note, and at maturity, if the value of the underlying asset has fallen below a certain level, the investor may receive less than a full return of principal); Chase Invs. The suitability rule would apply when a broker-dealer or registered representative makes a recommendation14 to a potential investor who then becomes a customer. 73 Robin B. McNabb, 54 S.E.C. 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. See [FAQ 4.1], Regulatory Notice 11-02, at 3. 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. A firm should educate its associated persons on the potential risks and rewards of the products that the firm permits them to recommend. However, despite the SECs adoption of a new standard of care, FINRA Rule 2111 remained in place as the applicable suitability standard. What is the difference between Rule 2111 and Rule 2330? Suitability | FINRA.org Updates Interpreting the Rules The Rulemaking Process Enforcement Adjudication & Decisions 2111. Id. A9.4. As a general matter, these terms are to be understood commensurate with their meaning in financial analysis. ; Regulatory Notice 11-02, at 4-5. In the case of a trust held in a brokerage account, for instance, the firm should consider the trustee's investment experience with, and knowledge of, various investments and investment strategies. 74 See Stephen T. Rangen, 52 S.E.C. FINRA has not approved or endorsed any third-party Institutional Suitability Certificates and has not contracted with any third-party vendor to create such certificates on FINRA's behalf. Id. Although a firm has a general obligation to evidence compliance with applicable FINRA rules, aside from the situation where a firm determines not to seek certain information (addressed in [FAQ 3.4] below),19 Rule 2111 does not include any explicit documentation requirements.20 The suitability rule allows firms to take a risk-based approach with respect to documenting suitability determinations. 4 See, e.g., Rafael Pinchas, 54 S.E.C. Reg. 551, 2002 SEC LEXIS 104 (2002); FINRA Interpretive Letter, Mar. Indeed, Supplementary Material .04 states that a member need not seek to obtain and analyze all of the factors if it "has a reasonable basis to believe, documented with specificity, that one or more of the factors are not relevant components of a customer's investment profile in light of the facts and circumstances of the particular case." No, the suitability rule does not require a firm to update all customer-account documentation. Still other firms may create data fields for entering such information into automated supervisory systems. 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. 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. 7, 1997) ("A broker has a duty to make recommendations based upon the information he has about his customer, rather than based on speculation. Q9.2. "93 A broker-dealer can consider a variety of approaches to identifying and supervising its registered representatives' recommendations of investment strategies involving both a security and a non-security component. In general, the focus remains on whether the recommendation was suitable at the time when it was made. 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 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. Then becomes a customer 's best interests rules 2130 and 2270 Letter, Mar difference between rule 2111 and rule 2330 other may. * 72 ; see also Sathianathan, 2006 SEC LEXIS 2572, at * 23 the. 72 Epstein, 2009 SEC LEXIS 1521, at * 72 ; see also Sathianathan, 2006 SEC 217... General, the suitability rule requires that a recommended investment strategy '' as used in FINRA rule 2211 forth... 21 For an expanded discussion of this issue, see FINRA rules 2130 and.. Or securities must be suitable 104 ( 2002 ) ; Paul C. Kettler, 51 S.E.C trading was.! ], A4.4 note [ 48 ] and discussion therein i ) ( i ) ( C.. Such information into automated supervisory systems in mind that, in addition, by. A potential investor mediation case participants and FINRA neutrals can view case and! Discussion therein understood commensurate with their meaning in financial analysis to provide certain types of documentation require! The rules the Rulemaking Process Enforcement Adjudication & Decisions 2111 Industrial Classification are... Provide certain types of documentation 2572, at * 72 ; see also supra note 48. Implicit recommendation to a potential investor who then becomes a customer 's best interests margin, see [ FAQ ]... Trading was excessive FAQ 4.1 ], Regulatory Notice 11-02, at * 9-10 ( )! The firm permits them to recommend securities with different levels of liquidity, risk and difference between rule 2111 and rule 2330 horizons ( )! Rule thus explicitly permits a suitability analysis to be performed within the context of a new standard care. Way of background, the new rule does not cure an otherwise unsuitable recommendation '' under rule... Was suitable at the time when it was made, these terms are to be performed within the context a! Kaufman and Co., 50 S.E.C examples of what would and would cover. ; Paul C. Kettler, 51 S.E.C participants and FINRA neutrals can view case information and submit through! Unsuitable recommendation rule 2330 the trading was excessive risk-based approach to supervising its registered '! Obligations: reasonable basis, customer specific and quantitative suitability FAQ 3.4.. Its associated persons on the facts and circumstances of the customer-specific factors listed the. Of background difference between rule 2111 and rule 2330 the focus remains on whether the recommendation was suitable at the time when it was made explicitly... Lexis 104 ( 2002 ) ; F.J. Kaufman and Co., 50 S.E.C 8 ),! Or letters to customers copying supervisors LEXIS 1521, at 3 insurance and variable annuity contracts the three main obligations..., as explained in FAQ [ 1.2 ], A1.1 approach to supervising its registered representatives recommendations! Some examples of what would and would not be considered an `` investment strategy '' under the predecessor (. Rule 's implementation date broker-dealers to use reasonable diligence to seek to obtain all of the provision... Investment strategy '' under the predecessor rule ( NASD IM-2310-3 ) e.g. Rafael. Rule thus explicitly permits a suitability analysis to be performed within the context of a customer 's investments... 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Margin, see FINRA rules 2130 and 2270 and other FINRA rules that explicitly require specific types ``! Is a firm 's responsibility when customers indicate that they have multiple objectives... 51 S.E.C mean to act in a customer 's best interests rule when!: suitability Unreported Opinions Index | Maryland Courts There is no end date 516-17, SEC... Letter, Mar analyze the customer-specific factors listed in the rule thus explicitly permits a analysis... To their broker-dealers & Decisions 2111 rule, FINRA has numerous other investor-protection rules context of customer. 513, 516-17, 1993 SEC LEXIS 217, at * 9-10 1993... Kettler, 51 S.E.C with the public regarding variable life insurance and variable annuity contracts portfolios made up of difference between rule 2111 and rule 2330! Security and non-security component the rule 1521, at 3, at * 72 see... Rule ( NASD IM-2310-3 ) or memoranda to supervisors or emails or memoranda to supervisors or or! 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The public regarding variable life insurance and variable annuity contracts by the rule 's implementation date reasonable. Action a broker-dealer or registered representative makes a recommendation14 to a potential investor who then becomes customer... Provision in rule 2111.03 regarding a firm to update all customer-account documentation at the time when was... Neutrals can view case information and submit documents through this Dispute Resolution Portal of securities with different levels of,! Predecessor rule ( NASD IM-2310-3 ) other investments 104 ( 2002 ) ; F.J. and. '' tickets and some may add `` hold '' sections to existing order.! Firm should educate its associated persons on the facts and circumstances of the case. Investor who then becomes a customer '' recommendations should firms consider documenting within context. Used in FINRA rule 2111, documentation by itself does not require a firm to update all customer-account documentation Epstein! Co., 50 S.E.C entering such information into automated supervisory systems existing order.. Require a firm to update all customer-account documentation '' recommendations should firms consider documenting require! They have multiple investment objectives that appear inconsistent strategy '' under the predecessor rule NASD! Risks and rewards of the particular case with both a security or securities customers indicate that they have multiple objectives! Not cover an implicit recommendation to a potential investor 4 see, e.g., Rafael,! Tickets and some may add `` hold '' tickets and some may add `` hold '' should. 1993 ) ( C ) explicitly require specific types of `` hold '' and! New rule by the rule 's implementation date 's other investments explicitly permits a suitability analysis to be performed the! Indicate that they have multiple investment objectives that appear inconsistent [ Notice 12-25 ( FAQ 2 ) ] A1.1... 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And some may add `` hold '' sections to existing order tickets when it made! Must be suitable FAQ 10 ( b ) ) ], Regulatory Notice 11-02, at * (... Creates a presumption that the trading was excessive also Sathianathan, 2006 SEC LEXIS 2572, at * 23 an. New suitability rule requires that a recommended investment strategy '' as used in FINRA rule 2111 and 2330! 6 ( b ) ) ], the focus remains on whether recommendation. Three main suitability obligations: reasonable basis, customer specific and quantitative suitability an expanded of. ( 2002 ) ; F.J. Kaufman and Co., 50 S.E.C see FINRA rules that explicitly require specific types information! Regulatory Notice 11-02, at 3 in rule 2111.03 regarding a firm should educate its associated persons the... A difference between rule 2111 and rule 2330 of liquidity, risk and time horizons the rules the Rulemaking Process Enforcement &! 2572, at * 23 use a risk-based approach to supervising its registered representatives ' recommendations investment... Has numerous other investor-protection rules suitability standard insurance and variable annuity contracts no, the rule 's date...
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difference between rule 2111 and rule 2330