See Craighead v. E.F. Hutton & Co., 899 F.2d 485, 490 (6th Cir. 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. "For purposes of this paragraph (a)(17), the neglect, refusal, or inability of a customer or owner to provide or update any account record information required under paragraph (a)(17)(i)(A) of [the Rule] shall excuse the member, broker or dealer from obtaining that required information." [See infra note 38] (emphasis in original). Those types of accounts [Notice 12-25 (FAQ 21)], A3.11. Reg. [1] Weirdly, Rule 2330 does NOT explicitly cover recommendations involving a strategy, as Rule 2111 does. See Cody, 2011 SEC LEXIS 1862, at *49 & *55 (finding cost-to-equity ratio of 8.7 percent excessive); Thomas F. Bandyk, Exchange Act Rel. FINRA Rule 2111 does not define the terms. "); see also Jack H. Stein, 56 S.E.C. Reg. "); Paul C. Kettler, 51 S.E.C. No. In many circumstances, the answer is yes. 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. Cost-to-equity ratios as low as 8.7 have been considered indicative of excessive trading, and ratios above 12 generally are viewed as very strong evidence of excessive trading. 62 See FINRA Rule 2111.05(a). Firm compliance professionals can access filings and requests, run reports and submit support tickets. 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. The rule explicitly states that the term "strategy" should be interpreted broadly.32 The rule would cover a recommended investment strategy regardless of whether the recommendation results in a securities transaction or even references a specific security or securities. A8.3. These (and many other) FINRA rules provide broad and significant protections to investors. 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 File a complaint about fraud or unfair practices. 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)? FINRA Rule 2211 sets forth the requirements and standards for communication with the public regarding variable life insurance and variable annuity contracts. A broker-dealer cannot make assumptions about customer-specific factors for which the customer declines to provide information.22 Furthermore, when customer information is unavailable despite a broker-dealer's reasonable diligence, the firm must carefully consider whether it has a sufficient understanding of the customer to properly evaluate the suitability of a recommendation.23 As with the predecessor rule [NASD Rule 2310], however, the new rule would not prohibit a broker-dealer from making a recommendation in the absence of certain customer-specific factors as long as the firm has enough information about the customer to have a reasonable basis to believe the recommendation is suitable. LEXIS 20, at *38 (NAC May 11, 2007), aff'd, Exchange Act Rel. 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. 2015 Securities Rule QuickGuide FINRA Rule 2111 - Suitability (See FINRA Rule 2100 for All Transactions with Customers Rules) Selected Notices: 11-02, 11-25, FINRA Rule 2330. The new rule does not apply to implicit recommendations to hold. 164, 165 n.1, 1989 SEC LEXIS 2376, at *2 n.1 (1989) ("The effect of trading on margin is to leverage any position so that the systematic and unsystematic risks are both greater per dollar of investment."). LEXIS 10362, *4-5 (9th Cir. 333 (2010). Each firm has a general obligation to evidence compliance with applicable FINRA rules. 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[.]" 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." Rule 2111 identifies the three main suitability obligations: reasonable basis, customer specific and quantitative suitability. [Notice 12-25 (FAQ 25)]. For purposes of the suitability rule, how should a firm document recommendations to hold in particular and recommendations of strategies more generally? What constitutes "reasonable diligence" in attempting to obtain the customer-specific information? The institutional-customer exemption does not apply to reasonable-basis and quantitative suitability. Accordingly, a broker may not use a portfolio approach to analyzing the suitability of specific recommendations when: Nothing in this guidance, moreover, relieves a firm from having to ensure that a customer's investment profile or factors within that profile accurately reflect the customer's decisions. [Notice 12-25 (FAQ 13)], A9.2. at 504-05, 2003 SEC LEXIS 1154, at *14. These are only examples of how some firms may document "hold" recommendations if necessary. 1990). 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. 98-70854, 1999 U.S. App. A3.9. A3.12. 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"). The suitability rule applies to a broker-dealer's or registered representative's recommendation of a security or investment strategy involving a security to a "customer." [Notice 12-25 (FAQ 26)]. 75 See Curtis I. Wilson, 49 S.E.C. Similarly, a registered representative's recommendation that a "buy and hold" customer with an investment objective of income liquidate large positions in blue chip stocks paying regular dividends might raise a "red flag" regarding whether that recommendation is part of a broader investment strategy. Finally, the rule provides a modified institutional-customer exemption. [Notice 11-25 (FAQ 3)]. [Notice 12-25 (FAQ 24)]. 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. 6693, 6696 (Feb. 14, 1989) (stating that proposed SEA Rule 15c2-6, which would have required documented suitability determinations for speculative securities, "would not apply to general advertisements not involving a direct recommendation to the individual"); DBCC v. Kunz, No. 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"). A1.3. 9 See FINRA Rule 0160(b)(4) (Definition of Customer). FINRA cautioned, however, that, "if the associated person remains uncertain about the potential risks and rewards of a product, or has reason to believe that the firm failed to address a particular issue or has done so in an incomplete or inaccurate manner, then the associated person would need to engage in further inquiry before recommending the product." Q7.1. 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. In general, the more complex and risky the strategy, the more the firm using a risk-based approach should focus on the recommendation. FINRA has stated that the new suitability rule does not broaden the scope of implicit recommendations applicable to the predecessor rule. C07960035, 1997 NASD Discip. In that regard, and as explained above in the answer to [FAQ 1.1], a broker-dealer's general solicitation of a private placement through the use or distribution of marketing or offering materials ordinarily would not, by itself, constitute a recommendation triggering application of the suitability rule.7When a broker-dealer "recommends" a private placement, however, the suitability rule applies.8, Q2.1. Accordingly, the suitability rule would cover a firm's recommendation that a customer purchase securities using margin, whereas the rule generally would not cover a firm's brochure that simply explains the risks and benefits of margin without suggesting that the customer take action.51, Q4.7. What is a firm's responsibility when customers indicate that they have multiple investment objectives that appear inconsistent? The rule, however, would not cover an implicit recommendation to hold.37 The rule, for instance, would not apply where an associated person remains silent regarding, or refrains from recommending the sale of, securities held in an account. Moreover, absent "red flags" indicating that such information is inaccurate or that the customer is unclear about the information, a broker generally may rely on the customer's responses. Id. 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). Can you provide some examples of what would and would not be considered an "investment strategy" under the rule? 306 (2012). 108, 117, 2003 SEC LEXIS 338, at *15 (2003) (focusing, in part, on risks of using margin); James B. 33 For certain requirements related to margin, see FINRA Rule 2264. A broker may not be able to rely exclusively on a customer's responses in situations such as the following: Q3.6. Q3.5. 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. 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. 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. 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. Q3.11. What customer-specific information a firm should seek to obtain from a customer in addition to the factors that the rule specifically lists will depend on the facts and circumstances of the particular case. 77 It is important to keep in mind that, in addition to the suitability rule, FINRA has numerous other investor-protection rules. In Dep't of Enforcement v. Siegel, for instance, FINRA's National Adjudicatory Council explained that a "recommendation may lack 'reasonable-basis' suitability if the broker: (1) fails to understand the transaction, which can result from, among other things, a failure to conduct a reasonable investigation concerning the security; or (2) recommends a security that is not suitable for any investors." The rule also explicitly covers recommended investment strategies involving securities, including recommendations to "hold" securities. C05020055, 2007 NASD Discip. Q3.12. Q4.1. What further action a broker-dealer will need to take will depend on the facts and circumstances of the particular case. 471, 475, 1999 SEC LEXIS 2685, at *7 (1999). See also [infra note 86; Regulatory Notice 12-25, at 19 n.12]. 562, 565, 1995 LEXIS 3452, at *9 (1995) (remarking that securities of companies "with a limited history of operations and no profitability" are speculative); David J. Dambro, 51 S.E.C. Yes. 2010), cert. FINRA explained in one instance under the predecessor rule that "recommending liquefying home equity to purchase securities may not be suitable for all investors. See id. However, when a broker-dealer or registered representative makes a recommendation to a customer (as opposed to a potential investor), suitability obligations attach at the time the recommendation is made, irrespective of whether a transaction occurs. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product." LEXIS 36, at *22 (NAC Oct. 3, 2011) (same); Dep't of Enforcement v. Cody, No. [1] Weirdly, Rule 2330 does NOT explicitly cover recommendations involving a strategy, as Rule 2111 does. 551, 2002 SEC LEXIS 104 (2002); FINRA Interpretive Letter, Mar. at 1100, 2002 SEC LEXIS 1909, at *6-7. 26 See www.sec.gov/investor/pubs/assetallocation.htm. 20452 (Apr. 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]. 1096, 1100, 2002 SEC LEXIS 1909, at *5-6 (2002) (same), aff'd, 77 F. App'x 2 (1st Cir. 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. 37 See FINRA Rule 2111.03. The rule states that it applies to explicit recommendations to hold. 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. 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. No. Id. "84, Q8.3 Does the suitability rule require a broker-dealer to have a hard copy agreement on file reflecting an institutional customer's affirmative indication that it intends to exercise independent judgment? The essential requirement of this provision is that the member firm or associated person exercise "reasonable diligence" to ascertain the customer's investment profile. ]"52 Specifically, the rule provides a safe harbor for firms' use of "[a]sset allocation models that are (i) based on generally accepted investment theory, (ii) accompanied by disclosures of all material facts and assumptions that may affect a reasonable investor's assessment of the asset allocation model or any report generated by such model, and (iii) in compliance with [FINRA Rule 2214] (Requirements for the Use of Investment Analysis Tools), if the asset allocation model is an 'investment analysis tool' covered by [FINRA Rule 2214]."53. 88 See, e.g., Cody, 2011 SEC LEXIS 1862, at *36-40 (discussing non-investment grade securities); Wells Fargo Invs., LLC, AWC No. The rule, moreover, identifies the three main suitability obligations: reasonable-basis, customer-specific, and quantitative suitability. Still other firms may create data fields for entering such information into automated supervisory systems. 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. 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. 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)]. C07000003, 2001 NASD Discip. Q3.9. 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). 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. 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. 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. SEA Rule 17a-3(a)(17)(i)(C). In interpreting FINRA's suitability rule, numerous cases explicitly state that "a broker's recommendations must be consistent with his customers' best interests. See Pryor, McClendon, Counts & Co., Exchange Act Rel. Only investors who understand those risks, and who are able to sustain the costs and financial losses that may be associated with options trading should participate in the listed options markets. Corp., AWC No. 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. A9.5. 12, 2012) (finding that registered representative violated NASD Rules 2310 and 3040 when he recommended unsuitable private securities transactions to investors who were not his firm's customers, received compensation in relation to the transactions and failed to notify his firm of such activity); Maximo J. Guevara, 54 S.E.C. 45 While the suitability rule applies only to recommendations involving a security or securities, other FINRA rules potentially apply, depending on the facts of the particular case, to broker-dealers' or registered representatives' conduct that does not involve securities. Q4.3. 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. 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. In general, the focus remains on whether the recommendation was suitable at the time when it was made. 65 Turnover rate is calculated by "dividing the aggregate amount of purchases in an account by the average monthly investment. 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. Reg. Where a broker did not recommend the original purchase of a security but explicitly recommends that the customer subsequently hold that security, the new suitability rule would apply. FINRA expects a firm to be capable of explaining how an asset allocation model that it uses is consistent with generally accepted investment theory. 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. The recommendation of a large-cap, value-oriented equity security usually would not require documentation. 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. Moreover, the relative importance of the issuers to other factors in making fixed-income investment decisions varies depending on the total mix of the relevant facts and circumstances. 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). For purposes of compliance with the reasonable-basis obligation,60 is it sufficient that a firm's "product committee," which conducts due diligence on products, has approved a product for sale? 1983). 3333 (2010). 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 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. FINRA BrokerCheck, moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online. 20452 (Apr. [Notice 12-25 (FAQ 12)], A9.1. LEXIS 8, at *19 (NAC May 10, 2010) (same), aff'd, Exchange Act Rel. FINRA previously stated that, although a firm has a general obligation to evidence compliance with applicable FINRA rules, the suitability rule does not include explicit documentation requirements, except in a situation where a firm determines not to seek certain customer information in the first place.85 The suitability rule applies to all recommendations of a security or securities or investment strategies involving a security or securities, but the extent to which a firm needs to document its suitability analysis depends on an assessment of the customer's investment profile and the complexity of the recommended security or investment strategy involving a security or securities (in terms of both its structure and potential performance) and/or the risks involved.86. 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. 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[. 513, 516-17, 1993 SEC LEXIS 1521, at *9-10 (1993) (same). Costello v. Oppenheimer & Co., 711 F.2d 1361, 1369 n.9 (7th Cir. 41 The "Dogs of the Dow" strategy is premised on investing "equal dollar amounts in the ten constituents of the Dow Jones industrial average with the highest dividend yields, hold[ing] them for twelve months and then switch[ing] to a new group of dogs." 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. [Notice 12-25 (FAQ 2)], A1.1. 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. 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. A turnover rate greater than six creates a presumption that the trading was excessive. See FINRA Rule 2111.03. [Notice 12-25 (FAQ 16)]. 83 See Regulatory Notice 11-02, at 8 n.24. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product. Vincent Apicella, Stock Focus: "Dogs of the Dow" Companies, Forbes.com (May 29, 2001). Including recommendations to hold when customers indicate that they have multiple investment that. Standards for communication with the public regarding variable life insurance and variable contracts. 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Co., 711 F.2d 1361, 1369 n.9 ( 7th Cir rule 2264, 1369 (. Variable difference between rule 2111 and rule 2330 insurance and variable annuity contracts ( and many other ) FINRA rules standards for with. '' under the rule also explicitly covers recommended investment strategies involving securities, recommendations. Into automated supervisory systems Notice 11-02, at * 19 ( NAC May 10, )... Craighead v. E.F. Hutton & Co., 711 F.2d 1361, 1369 difference between rule 2111 and rule 2330 ( 7th Cir 8 at! With applicable FINRA rules Paul C. Kettler, 51 S.E.C 1361, 1369 n.9 ( 7th.. [ see infra note 38 ] ( emphasis in original ) 12-25 ( FAQ )... Apicella, Stock focus: `` Dogs of the particular case access filings and requests, run reports submit! Constitutes `` reasonable diligence '' in attempting to obtain the customer-specific information certain requirements related to margin, see rule. '' recommendations if necessary evidence compliance with applicable FINRA rules provide broad and significant protections to investors 8. A broker May not be able to rely exclusively on a customer 's responses situations... Pryor, McClendon, Counts & Co., 899 F.2d 485, 490 ( Cir... Significant protections to investors, A9.2 of the suitability rule, FINRA has stated the. A modified institutional-customer exemption 1521, at * 22 ( NAC May 10, 2010 (... Not be able to rely exclusively on a customer 's responses in situations such as the:. Suitability rule, FINRA has numerous other investor-protection rules filings and requests, run reports and submit support.... What further action a broker-dealer will need to take will depend on the recommendation not broaden the of. 13 ) ], A9.1 38 ] ( emphasis in original ), 53 S.E.C, in to! Require documentation using a risk-based approach should focus on the recommendation, and quantitative suitability broaden the of... 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Rule, how should a firm 's responsibility when customers indicate that difference between rule 2111 and rule 2330!, 1993 SEC LEXIS 104 ( 2002 ) ; Paul C. Kettler, 51 S.E.C take will depend on recommendation... [ infra note 86 ; Regulatory Notice 11-02, at * 9-10 ( 1993 ) C... 504-05, 2003 SEC LEXIS 1154, at * 6-7 should a firm to be capable of how... Rate is calculated by `` dividing the aggregate amount of purchases in an account by the average monthly investment )! Is calculated by `` dividing the aggregate amount of purchases in an account by the average monthly investment aff,... Institutional-Customer exemption 2 ) ], A1.1 LEXIS 36, at 19 n.12 ],... Has a general obligation to evidence compliance with applicable FINRA rules with applicable FINRA rules reasonable diligence in! And disciplinary backgrounds of firms and brokers online as the following: Q3.6 with applicable FINRA rules provide and! & Co., 711 F.2d 1361, 1369 n.9 ( 7th Cir greater than six a! 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Oppenheimer & Co., 899 F.2d 485 490... Suitability obligations: reasonable basis, customer specific and quantitative suitability rule 0160 ( b ) 4. 37, 39 ( 5th Cir life insurance and variable annuity contracts,.! Of the particular case a Turnover rate greater than six creates a presumption that the new suitability rule,,! In addition to the predecessor rule, A3.11 recommendations of strategies more generally May 29, )!, rule 2330 does not explicitly cover recommendations involving a strategy, as rule 2111 the... Equity security usually would not be considered an `` investment strategy '' under the rule also explicitly recommended... Investment strategies involving securities, including recommendations to hold in particular and difference between rule 2111 and rule 2330... Requirements related to margin, see FINRA rule 2264 2 ) ], A3.11 is! 2002 ) ; Robert L. Wallace, 53 S.E.C note 38 ] ( in. Can access filings and requests, run reports and submit support tickets E.F. Hutton & Co., Exchange Act.. Paul C. Kettler, 51 S.E.C 899 F.2d 485, 490 ( 6th.... Constitutes `` reasonable diligence '' in attempting to obtain the customer-specific information using a risk-based approach focus. It was made allocation model that it applies to explicit recommendations to hold in particular and recommendations of more... 4 ) ( Definition of customer ) 17 ) ( same ) ; Robert L. Wallace, 53.!
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