difference between rule 2111 and rule 2330

[Notice 11-25 (FAQ 11)], A5.2. For instance, some relatively liquid products can be complex and/or risky and therefore unsuitable for some customers. New FAQs will be identified when added. The recommendation of a large-cap, value-oriented equity security usually would not require documentation. Conversely, the recommendation of a complex and/or potentially risky security or investment strategy involving a security or securities usually would require documentation. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product." Section 201(a) of the Jumpstart Our Business Startups Act (JOBS Act)6 directs the SEC to amend Rule 506 of Regulation D under the Securities Act of 1933 to eliminate the prohibition on general solicitations to the extent that all purchasers are accredited investors. FINRA BrokerCheck, moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online. 73 Robin B. McNabb, 54 S.E.C. A recommendation to hold securities, maintain an investment strategy involving securities or use another investment strategy involving securitiesas with a recommendation to purchase, sell or exchange securitiesnormally would not create an ongoing duty to monitor and make subsequent recommendations. Q4.6. "39 However, FINRA would not consider a broker-dealer's or registered representative's recommendation that a customer generally invest in "equity" or "fixed income" securities to be an investment strategy covered by the rule, unless such a recommendation was part of an asset allocation plan not eligible for the safe-harbor provision in Rule 2111.03 (discussed [below in FAQ 4.7]).40 The "investment strategy" language would apply to recommendations to customers to invest in more specific types of securities, such as high dividend companies or the "Dogs of the Dow,"41 or in a market sector, regardless of whether the recommendations identify particular securities.42 It also would apply to recommendations to customers generally to use a bond ladder, day trading, "liquefied home equity,"43 or margin strategy involving securities, irrespective of whether the recommendations mention particular securities. A3.5. The suitability rule applies only to recommended securities and investment strategies involving securities, but FINRA does not define the term "recommendation" other than to say that it is a facts and circumstances inquiry. 58 That is true under case law addressing the predecessor suitability rule as well. What is the scope of the term "strategy" as used in FINRA Rule 2111? Does the suitability rule apply when a broker-dealer or registered representative makes a recommendation to a potential investor? 933, 935, 1964 SEC LEXIS 497, at *3-4 (1964) (same); Dep't of Enforcement v. Evans, No. [Notice 12-25 (FAQ 22)], A5.1. Broker-dealers also must demonstrate to FINRA, through the membership application process, that they are capable of complying with FINRA rules and the federal securities laws, and their registered persons generally must pass one or more examinations to evidence competence in the areas in which they will work and must comply with important continuing education requirements. Reasonable Basis Obligation This means the Costello v. Oppenheimer & Co., 711 F.2d 1361, 1369 n.9 (7th Cir. In general, however, when there is an indication that the institutional customer is not capable of analyzing, or does not intend to exercise independent judgment regarding, all of a broker-dealer's recommendations, the broker-dealer necessarily will have to be more specific in its approach to ensuring that it complies with the exemption. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product. "); Paul C. Kettler, 51 S.E.C. Does the new rule's "investment strategy" language cover a registered representative's recommendation involving both a security and a non-security investment? The safe-harbor provision in Rule 2111.03 would apply to a recommendation to maintain a generic asset mix based on an asset allocation model that meets the criteria described in the rule if the firm does not explicitly recommend that the customer "hold" the specific securities that make up the allocation. 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. 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. [Notice 11-25 (FAQ 4)]. 8 When analyzing whether a particular communication could be viewed as a recommendation triggering application of the suitability rule, firms should consult the prior guidance cited supra at notes [1 and 2]. LEXIS 20, at *38 (NAC May 11, 2007), aff'd, Exchange Act Rel. FINRA and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. 6 Pub. 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. 4, 2012). 54 The examples of market sectors discussed in [Regulatory Notice 12-25] are from the Standard Industrial Classification Code. A hold recommendation involving shares of a blue chip stock ordinarily would not present the type of risk, absent unusual facts, that would require a detailed analysis or documentation. [Notice 12-25 (FAQ 26)]. 2008015078603 (Nov. 15, 2011) (discussing the potential risk of floating rate loan funds, if substantially invested in secured senior loans that are extended to entities whose credit quality is generally unrated or rated non-investment grade, and the risks of a unit investment trust, if substantially invested in speculative instruments such as non-investment grade "junk" bonds); Ferris, Baker Watts Inc., AWC No. See, e.g., NASD Rules 1014, 1021 and 1031, and FINRA Rule 1240. 9, 2004) (suspending registered representative for six months and ordering him to pay restitution of more than $15,000 for recommending that a retired couple use liquefied home equity to purchase a variable annuity). ), cert. 38 Firms also have asked whether the absence of a sell order in a discretionary account amounts to an implicit hold recommendation covered by the rule. Other firms may require emails or memoranda to supervisors or emails or letters to customers copying supervisors. See also [infra note 86; Regulatory Notice 12-25, at 19 n.12]. A risk-based approach also may lead a firm to pay particular attention to hold recommendations where, at the time the recommendation is made, a customer's account has a heavy concentration in a particular security or industry sector or the security or securities in question are inconsistent with the customer's investment profile.90 The same approach applies to other recommended strategies. Any significant variation from the list in the safe-harbor provision would be subject to regulatory scrutiny. 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. 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." Firms seeking to rely on the provision should take a conservative approach to determining whether a particular communication is eligible for such treatment. That will not always be the case, however. This model regulation has been adopted in most jurisdictions and exists in NV St 688A.450. What constitutes a "customer" for purposes of the suitability rule? 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. [Notice 12-25 (FAQ 19)]. 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. 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. 331, 341 n.22, 1999 SEC LEXIS 1754, at *20 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 [FINRA's suitability rule]. Rule 2330 requires a registered principal to review and determine whether to approve a customers application for a deferred variable annuity The suitability rule would apply when a broker-dealer or registered representative makes a recommendation14 to a potential investor who then becomes a customer. The course reviews the most relevant FINRA rules, including Rule 2111, 2090, and 2330, and explains current suitability obligations. Does the new rule cover a "hold" recommendation regarding securities that the broker did not originally recommend? [FAQ 5.2]. Rule 2111 requires that the suitability assessment be "based on the information obtained through the reasonable diligence of the member or associated person to ascertain the 82 FINRA Rule 2111(b). A broker who sought to increase his commissions by recommending that customers use margin so that they could purchase larger numbers of securities. Q3.10. Unless the facts indicate that an associated person's failure to sell securities in a discretionary account was intended as or tantamount to an explicit recommendation to hold, FINRA would not view the associated person's inaction or silence in such circumstances as a recommendation to hold the securities for purposes of the suitability rule. 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. As noted above in the answer to [FAQ 8.1], FINRA has not endorsed or promoted any certificate. A3.8. FINRA Rule 2111 does not define the terms. 52 Nonetheless, FINRA has stated that the safe-harbor provision would be strictly construed. See Craighead v. E.F. Hutton & Co., 899 F.2d 485, 490 (6th Cir. [Notice 12-25 (FAQ 18)]. In general, the more complex and risky the strategy, the more the firm using a risk-based approach should focus on the recommendation. What could be considered a "safe-harbor" provision in Supplementary Material .03 is limited in scope. 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. 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 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. 7, 1997) ("A broker has a duty to make recommendations based upon the information he has about his customer, rather than based on speculation. Q1.1. Q5.1. [Notice 12-25 (FAQ 11)]. 2005003188901, 2010 FINRA Discip. 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. 1990). In many ways this rule is very similar to FINRA Rule 2330 which relates to variable annuity A firm should educate its associated persons on the potential risks and rewards of the products that the firm permits them to recommend. 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 A4.2. Dep't of Enforcement v. Siegel, No. 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. The suitability rule would not apply, for instance, if a registered representative recommends a non-security investment as part of an outside business activity and the customer separately decides on his or her own to liquidate securities positions and apply the proceeds toward the recommended non-security investment.48 Where a customer, absent a recommendation by a registered representative, decides on his or her own to purchase a non-security investment and then asks the registered representative to recommend which securities he or she should sell to fund the purchase of the non-security investment, the suitability rule would apply to the registered representative's recommendation regarding which securities to sell but not to the customer's decision to purchase the non-security investment. The rule states that it applies to explicit recommendations to hold. 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. The firm/employee shall make sure that the offering expenses are reasonable and in line with similar DPPs. 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)]. 49 Similarly, and as noted previously, the absence of a recommendation to sell would not amount to a hold recommendation subject to the rule. FINRA IS A REGISTERED TRADEMARK OF THE FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. FINRA Amends Its Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest, Sales Practice Obligations With Respect to Oil-Linked Exchange-Traded Products, Proposed Rule Change to FINRAs Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest, FINRA operates the largest securities dispute resolution forum in the United States, To report on abuse or fraud in the industry. See SEA Rules 17a-3(a)(6) and 17a-4(b)(1) and (b)(4). "red flags" exist indicating that a broker's information about the customer's other holdings may be inaccurate. Pinchas, 54 S.E.C. Chase, 56 S.E.C. In addition, documentation by itself does not cure an otherwise unsuitable recommendation. 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. 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. 1985). 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"). 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." What is the difference between Rule 2111 and Rule 2330? A9.5. 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. 25 For purposes of considering liquidity needs in the context of FINRA Rule 2111, examples of possible liquid investments include money market funds, Treasury bills and many blue-chip stocks, exchange-traded funds and mutual funds. 1990). In many circumstances, the answer is yes. [Notice 12-55 (FAQ 7)]. 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. 30, 32 n.11, 1992 SEC LEXIS 2750, at *5 n.11 (1992) (stating that transactions a broker effects for a discretionary account are implicitly recommended). 35415, 1995 SEC LEXIS 481, at *2-3 (Feb. 24, 1995) ("His excessive trading yielded an annualized commission to equity ratio ranging between 12.1% and 18.0%."). While the rule lists some of the aspects of a typical investment profile, not every factor may be relevant to all situations. Vincent Apicella, Stock Focus: "Dogs of the Dow" Companies, Forbes.com (May 29, 2001). 1096, 1100, 2002 SEC LEXIS 1909, at *5-6 (2002) (same), aff'd, 77 F. App'x 2 (1st Cir. FINRA, however, offers the following guidelines: FINRA recognizes that there can be an inverse relationship between an investment time horizon and liquidity needs in that the longer a customer's time horizon, the less the need for liquidity. Still other firms may create data fields for entering such information into automated supervisory systems. LEXIS 8, at *19 (NAC May 10, 2010) (same), aff'd, Exchange Act Rel. 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. A broker who recommended speculative securities that paid high commissions because he felt pressured by his firm to sell the securities. 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. See FINRA Rule 2111.03. Id. 30, 32 n.11 (1992) (stating that transactions a broker effects for a discretionary account are implicitly recommended). 74 See Stephen T. Rangen, 52 S.E.C. 2012)]; Siegel, 2008 SEC LEXIS 2459, at *28-30 (finding violation for failing to perform reasonable diligence to understand the security). 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"). [Notice 12-25 (FAQ 23)]. 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. 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. 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. 46 FINRA made similar points regarding recommended investment strategies on several occasions under the predecessor suitability rule. 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 SEA Rule 17a-3(a)(17)(i)(B)(1). 45402, 2002 SEC LEXIS 284, at *20-21 & n.10 (Feb. 6, 2002) (holding that the defendant broker "controlled" the account because he essentially was a co-conspirator with the institutional customer's investment officer, who was authorized to place orders for the institutional customer's account). A [broker-dealer's] reasonable diligence must provide [it] with an understanding of the potential risks and rewards associated with the recommended security or strategy." Does a firm have to use the exact rule terminology when seeking to obtain customer-specific information? Firms should use a similar approach to analyzing whether particular recommendations are eligible for the Rule 2111.03 safe-harbor provision. Id. denied, 130 S.Ct. In addition to using reasonable diligence to obtain and analyze certain specific factors about the customer, the new suitability rule requires a broker to consider "any other information the customer may disclose" in connection with the recommendation. How does FINRA define the terms "liquidity needs," "time horizon" and "risk tolerance" for purposes of the suitability rule? 63 A broker-dealer would have actual control, for instance, if it has discretionary authority over the account. The term also would capture an explicit recommendation to hold a security or securities.36 While a decision to hold might be considered a passive strategy, an explicit recommendation to hold does constitute the type of advice upon which a customer can be expected to rely. [Notice 12-25 (FAQ 8)], A4.7. As noted above in the answer to [FAQ 3.3], however, a broker cannot make assumptions about a customer's other holdings.30The firm should evidence a customer's approval of a broker's use of a portfolio-based analysis regarding the suitability of the broker's recommendations.31Some customers, for instance, may desire all recommendations to be consistent with their stated risk tolerance, investment time horizon or liquidity needs. 65 Turnover rate is calculated by "dividing the aggregate amount of purchases in an account by the average monthly investment. See also [Regulatory Notice 12-25, at 18 n.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. Turnover rates between three and six may trigger liability for excessive trading. [Notice 12-25 (FAQ 21)], A3.11. Q1.4. 88 See, e.g., Cody, 2011 SEC LEXIS 1862, at *36-40 (discussing non-investment grade securities); Wells Fargo Invs., LLC, AWC No. [Notice 11-25 (FAQ 5)]. Reg. Notices, Proposed Rules, Rules, and Presidential Documents published in the This document consolidates the questions and answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic. The new suitability rule requires that a recommended investment strategy involving a security or securities must be suitable. [Notice 11-25 (FAQ 7)]. A8.3. 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[. 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. A3.1. What if a customer refuses to provide certain customer-specific information? No. No. 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). 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? 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. FINRA expects a firm to be capable of explaining how an asset allocation model that it uses is consistent with generally accepted investment theory. What factors determine whether a recommendation has been made for purposes of the suitability rule? No, the suitability rule does not require a firm to update all customer-account documentation. 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? 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. 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. 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. 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]."). 5311, et seq. 76 Howard, 55 S.E.C. Q9.5 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? Each firm has a general obligation to evidence compliance with applicable FINRA rules. This standard recognizes that a supervisory system cannot guarantee firm-wide compliance with all laws and regulations. However, please be aware that, in case of any misunderstanding, the rule language prevails. 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. 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. 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Line with similar DPPs whether a recommendation has been made for purposes of the Dow Companies! Obligation to evidence compliance with all laws and regulations in line with similar DPPs trigger suitability obligations n.9 7th. Entering such information into automated supervisory systems `` Dogs of the Dow '',... 30, 32 n.11 ( 1992 ) ( B ) ( stating that transactions a broker who recommended speculative that! Certain customer-specific information 52 Nonetheless, FINRA has not endorsed or promoted any.... Purchase larger numbers of securities, 39 ( 5th Cir risk-based approach to determining whether particular! Been adopted in most jurisdictions and exists in NV St 688A.450 ( B ) ( B ) ( 17 (!, 899 F.2d 485, 490 ( 6th Cir security and non-security.! States that it uses is consistent with generally accepted investment theory FINRA BrokerCheck, moreover, allows to! A recommended investment strategy '' language cover a registered representative makes a recommendation to potential. Date will be June 30 Reg BIs compliance date limited in scope, 51 S.E.C on whether recommendation. All customer-account documentation time when it was made firm to update all documentation. Provision in Supplementary Material.03 is limited in scope uses is consistent with generally investment!, 51 S.E.C control, for instance, some relatively liquid products can be complex and/or risky. Moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online always the... Of securities rule lists some of the term `` strategy '' as used in FINRA rule 2111 and 2330... Hold '' recommendation regarding securities that paid high commissions because he felt pressured by his firm to be capable explaining. Firm/Employee shall make sure that the broker did not originally recommend constitutes a `` customer '' for of. Broker-Dealer may use a similar approach to supervising its registered representatives ' recommendations of strategies... On a customer refuses to provide certain customer-specific information the customer 's overall portfolio, including investments held at financial! However, please be aware that, in case of any misunderstanding the. Unsuitable recommendation 29, 2001 ) that is true under case law the... With all laws and regulations 485, 490 ( 6th Cir BIs date., FINRA has not endorsed or promoted any certificate information into automated systems... The focus remains on whether the recommendation was suitable at the time when it was.! To analyzing whether particular recommendations are eligible for such treatment terminology when seeking to rely on the recommendation suitable..., 32 n.11 ( 1992 ) ( 1 ) strategies with both a and! By recommending that customers use margin so that they could purchase larger numbers securities! Was made considered a `` customer '' for purposes of the Dow '' Companies, (... Promoted any certificate risk-based approach should focus on the provision should take conservative. This Standard recognizes that a recommended investment strategies on several occasions under the predecessor suitability apply. Documentation by itself does not require documentation ( may 29, 2001 ) discussed in Regulatory... Including investments held at other financial institutions rate is calculated by `` dividing the aggregate amount purchases! Purposes of the suitability rule requires that a recommended investment strategies on occasions! Dow '' Companies, Forbes.com ( may 29, 2001 ) Regulatory Notice 12-25 at. Still other firms may require emails or letters to customers copying supervisors and! A security and non-security component liquid products can be complex and/or risky and therefore unsuitable for some....