Chase, 56 S.E.C. 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." LEXIS 38, at *17 (NAC Dec. 3, 2001) ("Turnover rates between three and five have triggered liability for excessive trading"). No. Rule 2330 requires firms to have written policies and procedures in place for surveillance of brokers recommending, purchasing or exchanging of deferred variable annuities. 82 FINRA Rule 2111(b). 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 11-25 (FAQ 11)], A5.2. A3.4. 47 See Notice to Members 05-50, at 5 ("[R]ecommendations to liquidate or surrender a registered security such as a mutual fund, variable annuity, or variable life contract must be suitable, including where such liquidations or surrender[s] are for the purpose of funding the purchase of an unregistered [equity indexed annuity]."). A3.12. See SEA Rule 17a-3(a)(17)(i)(A). The answer depends on the facts and circumstances of the particular case. [Notice 12-25 (FAQ 14)]. Q6.1. This rule does not apply to: Transfers and FINRA has stated that the new suitability rule does not broaden the scope of implicit recommendations applicable to the predecessor rule. "); F.J. Kaufman and Co., 50 S.E.C. 108, 114, 2003 SEC LEXIS 383, at *11 (2003) (explaining that, when a customer refuses to supply information, a broker must "make recommendations only on the basis of the concrete information that the customer did supply and not on the basis of guesswork"); David J. Dambro, 51 S.E.C. Rule 2111 identifies the three main suitability obligations: reasonable basis, customer specific and quantitative suitability. Although FINRA does not define the term "recommendation," it has offered several guiding principles that firms and brokers should consider when determining whether particular communications could be viewed as recommendations. What constitutes "reasonable diligence" in attempting to obtain the customer-specific information? 22 See DBCC v. Hurni, No. [Notice 12-25 (FAQ 26)]. 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. See SEA Rule 17a-3(a)(17)(i)(B)(1). ", Q1.2. No. May 20, 1999) (holding that FINRA's requirement that registered representatives act in a manner consistent with just and equitable principles of trade applies to all unethical business conduct, regardless of whether the conduct involves securities); Vail v. SEC, 101 F.3d 37, 39 (5th Cir. The suitability rule does not prescribe the manner in which a firm must document "hold" recommendations when documentation may be necessary. [Notice 12-25 (FAQ 18)]. 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. Although firms should be capable of explaining how they are doing so and, where appropriate, evidencing that they are doing so, the rule does not dictate use of a specific method or process or of particular terminology. "); Daniel R. Howard, 55 S.E.C. See SEA Rules 17a-3(a)(6) and 17a-4(b)(1) and (b)(4). [Notice 11-25 (FAQ 3)]. Can you provide some examples of what would and would not be considered an "investment strategy" under the rule? [Notice 12-25 (FAQ 16)]. Q3.12. 20100224056, 2012 FINRA Discip. 61 See, e.g., Notice to Members 05-26 (recommending best practices for reviewing new products). The quantitative suitability obligation under the new rule simply codifies excessive trading cases. FINRA BrokerCheck, moreover, allows investors to review the professional and disciplinary backgrounds of firms and brokers online. [See infra note 38] (emphasis in original). A3.10. 2008)]; see also Scott Epstein, Exchange Act Rel. FINRA is aware that some firms currently ask customers for relevant information without using the exact rule terminology or separately designating factors (e.g., investment objectives that include a risk-tolerance component that is not separately labeled as such). [Notice 12-25 (FAQ 25)]. Other firms may require emails or memoranda to supervisors or emails or letters to customers copying supervisors. The new rule explains that, "[i]n general, what constitutes reasonable diligence will vary depending on, among other things, the complexity of and risks associated with the security or investment strategy and the [broker-dealer's] familiarity with the security or investment strategy. What is the difference between Rule 2111 and Rule 2330? at 504-05, 2003 SEC LEXIS 1154, at *14. 35 For certain requirements related to day trading, see FINRA Rules 2130 and 2270. "); Paul C. Kettler, 51 S.E.C. 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. Id. [FAQ 5.2]. FINRA Rule 2330 applies to initial recommendations involving purchasing and exchanging deferred variable annuities and new subaccount allocation. A customer, for example, may not want to divulge information about "other investments" held away from the broker-dealer in question. 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. Rule 2330 establishes broker requirements when recommending purchases and exchanges of deferred variable annuities. 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. No. C3A040016 (Mar. 306 (2012). The essential requirement of this provision is that the member firm or associated person exercise "reasonable diligence" to ascertain the customer's investment profile. 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. [Notice 12-25 (FAQ 15)], A3.2. The following frequently asked questions (FAQs) provide guidance on FINRA Rule 2111 (Suitability). A3.5. 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. In addition to the definitional change, the new institutional-customer exemption focuses on two factors: (1) whether a broker "has a reasonable basis to believe the institutional customer is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies involving a security or securities" (a factor used in the predecessor rule), and (2) whether "the institutional customer affirmatively indicates that it is exercising independent judgment" (a new requirement).81 A broker-dealer fulfills its customer-specific suitability obligation if all of these conditions are satisfied.82. Any significant variation from the list in the safe-harbor provision would be subject to regulatory scrutiny. However, where a broker-dealer's or registered representative's recommendation does not refer to a security or securities, the suitability rule is not applicable. In many ways this rule is very similar to FINRA Rule 2330 which relates to variable annuity 14 FINRA reiterates that the suitability rule applies only if a broker-dealer or registered representative makes a "recommendation." 94 In Notice to Members 99-45, FINRA said that the supervision rule "requires that a [firm's] supervisory system be reasonably designed to achieve compliance with applicable laws and regulations. 62 See FINRA Rule 2111.05(a). [Notice 12-25 (FAQ 22)], A5.1. 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. ]"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. 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. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product." 77 It is important to keep in mind that, in addition to the suitability rule, FINRA has numerous other investor-protection rules. 74 See Stephen T. Rangen, 52 S.E.C. What is a firm's responsibility when customers indicate that they have multiple investment objectives that appear inconsistent? Id. It also is important to note that, where an institutional customer has delegated decisionmaking authority to an agent, such as an investment adviser or a bank trust department, Rule 2111(b) makes clear that the factors relevant to determining whether the customer meets the criteria for the institutional-customer exemption will be applied to the agent. As described in greater detail in FAQ [4.7], there is a safe harbor for certain types of educational information and asset allocation models that otherwise could be considered investment strategies captured by the new rule. A4.5. 43 SeeNotice to Members 04-89 (discussing liquefied home equity). 33 For certain requirements related to margin, see FINRA Rule 2264. See FINRA Rule 2111.03. A broker whose mutual fund recommendations were "designed 'to maximize his commissions rather than to establish an appropriate portfolio' for his customers. 1990); Arceneaux v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 F.2d 1498, 1502 (11th Cir. 20452 (Apr. 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 regard to the type or form of documentation that may be needed, the facts and circumstances must inform that decision. at 1100, 2002 SEC LEXIS 1909, at *6-7. Dep't of Enforcement v. Siegel, No. 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. 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 should use a similar approach to analyzing whether particular recommendations are eligible for the Rule 2111.03 safe-harbor provision. A4.8. See Peter C. Bucchieri, 52 S.E.C. 73 Robin B. McNabb, 54 S.E.C. 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. Some customers may be reluctant to provide certain types of information to their broker-dealers. See Cody, 2011 SEC LEXIS 1862, at *48 (finding turnover rate of three provided support for excessive trading); Dep't of Enforcement v. Stein, No. confusion, FINRA is proposing limiting the application of Rule 2111 to circumstances in which Reg BI does not apply. 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 [FAQ 3.10]. 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. Firms seeking to rely on the provision should take a conservative approach to determining whether a particular communication is eligible for such treatment. 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. Corp., AWC No. Can a broker make recommendations based on a customer's overall portfolio, including investments held at other financial institutions? ), cert. 18 The term "obtained," as used in the rule's information-gathering section, does not require a firm to document the information in all instances. A broker who sought to increase his commissions by recommending that customers use margin so that they could purchase larger numbers of securities. For instance, does each individual recommendation have to be consistent with the customer's investment profile or can the suitability of a broker's recommendation be judged in light of its consistency with the customer's overall portfolio? [Notice 12-25 (FAQ 3)], A1.2. 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. SEA Rule 17a-3(a)(17)(i)(C). The rule thus explicitly permits a suitability analysis to be performed within the context of a customer's other investments. 58737, 2008 SEC LEXIS 2459 (Oct. 6, 2008), aff'd in relevant part, 592 F.3d 147 (D.C. Cir. The new rule does not apply to implicit recommendations to hold. FINRA explained that, although due diligence reviews by such committees can be extremely beneficial (see, e.g., Notice to Members 05-26), a firm's approval of a product for sale does not necessarily mean that an associated person has complied with the reasonable-basis obligation. 2003); Powell & McGowan, Inc., 41 S.E.C. See SEA Rule 17a-3(a)(17)(i)(D). 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." In many circumstances, the answer is yes. 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. A firm may use a risk-based approach to evidencing compliance with the suitability rule. 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. Reasonable Basis Obligation This means the LEXIS 8, at *19 (NAC May 10, 2010) (same), aff'd, Exchange Act Rel. Conversely, the recommendation of a complex and/or potentially risky security or investment strategy involving a security or securities usually would require documentation. A broker-dealer need not automatically use a detailed approach when no such indication exists, although providing at least some level of specificity (even if not required) may help eliminate misunderstandings. 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 Some customers with long time horizons may not desire to take on such risk and others, because of considerations outside their time horizons, are unable to do so. Id. 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. In addition, the term would capture an explicit recommendation to hold a security or securities or to continue to use an investment strategy involving a security or securities.44 The rule would apply, for example, when a registered representative meets (or otherwise communicates) with a customer during a quarterly or annual investment review and explicitly advises the customer not to sell any securities in or make any changes to the account or portfolio or to continue to use an investment strategy. [Broker-dealers] have different business models; offer divergent services, products and investment strategies; and employ distinct approaches to complying with applicable regulatory requirements. LEXIS 20, at *38 (NAC May 11, 2007), aff'd, Exchange Act Rel. 86 Firms should keep in mind, however, that SEA Rule 17a-3 requires that, for each account with a natural person as a customer or owner, a broker-dealer must create a record that includes, among other things, the customer's or owner's name, date of birth, employment status, annual income, and net worth, as well as the account's investment objectives. 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? 52 Specifically, the rule For purposes of the suitability rule, how should a firm document recommendations to hold in particular and recommendations of strategies more generally? 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." What factors determine whether a recommendation has been made for purposes of the suitability rule? In interpreting FINRA's suitability rule, numerous cases explicitly state that "a broker's recommendations must be consistent with his customers' best interests. [Notice 12-25 (FAQ 23)]. [Notice 12-25 (FAQ 11)]. Rule 2111 states that the term "investment strategy" is to be interpreted "broadly. How does FINRA define the terms "liquidity needs," "time horizon" and "risk tolerance" for purposes of the suitability rule? No. Turnover rates between three and six may trigger liability for excessive trading. 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. Id. 59328, 2009 SEC LEXIS 217, at *40 n.24 (Jan. 30, 2009) ("In interpreting the suitability rule, we have stated that a [broker's] 'recommendations must be consistent with his customer's best interests. [Notice 12-25 (FAQ 2)], A1.1. However, as [discussed herein], a firm may take a risk-based approach to evidencing compliance with the rule. 72 Epstein, 2009 SEC LEXIS 217, at *72; see also Sathianathan, 2006 SEC LEXIS 2572, at *23. 1985). A8.1. A broker-dealer's supervisory system must be reasonably designed to achieve compliance with applicable securities laws, regulations and FINRA rules.92 The reasonableness of a supervisory system will depend on the facts and circumstances. 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. For instance, the rule would cover a recommendation to purchase securities using margin33 or liquefied home equity34 or to engage in day trading,35 irrespective of whether the recommendation results in a transaction or references particular securities. L. No. 20 FINRA notes that there are SEC and other FINRA rules that explicitly require specific types of documentation. 58737, 2008 SEC LEXIS 2459, at *21-27 (Oct. 6, 2008) (applying the guiding principles to the facts of the case to find a recommendation), aff'd in relevant part, 592 F.3d 147 (D.C. 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. Q3.5. 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. Cir. 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. No. The suitability rule applies on a recommendation-by-recommendation basis. However, please be aware that, in case of any misunderstanding, the rule language prevails. (Violations of FINRA Rules 2330(b), 2111 and 2010) FINRA Rule 2330(b) prohibits a registered representative from recommending the purchase or exchange of a deferred variable annuity, unless the representative has a reasonable basis to believe that the purchase or exchange meets the suitability requirements of FINRA Rules 2111 and 2330(b)(1)(A). That will not always be the case, however. Q9.4. What types of "hold" recommendations should firms consider documenting? 29 FINRA also previously stated that a customer with multiple accounts at a single firm could have different investment profiles or investment-profile factors (e.g., objectives, time horizons, risk tolerance) for those different accounts. The significance of specific types of customer information generally will depend on the facts and circumstances of the particular case, including the nature and characteristics of the product or strategy at issue. When a broker is aware of a customer's overall portfolio (including investments held at other financial institutions), the broker is permitted to make recommendations based on the customer's overall portfolio as long as the customer is in agreement with such an approach. Harry Gliksman, 54 S.E.C. A broker who recommended speculative securities that paid high commissions because he felt pressured by his firm to sell the securities. What could be considered a "safe-harbor" provision in Supplementary Material .03 is limited in scope. A3.6. 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. See, e.g., Regulatory Notice 09-31 (reminding firms of their sales-practice obligations relating to leveraged and inverse exchange-traded funds). 53 FINRA Rule 2111.03. This document consolidates the questions and answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic. The recommendation of a large-cap, value-oriented equity security usually would not require documentation. What is the scope of the term "strategy" as used in FINRA Rule 2111? Suitability | FINRA.org Updates Interpreting the Rules The Rulemaking Process Enforcement Adjudication & Decisions 2111. 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. 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. To meet its suitability obligations, a firm must obtain and analyze enough customer information to have a reasonable basis to believe the recommendation is suitable. 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? 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. Reg. 54722, 2006 SEC LEXIS 2572, at *21 (Nov. 8, 2006) [, aff'd, 304 F. App'x 883 (D.C. Cir. LEXIS 15, at *9 (NBCC Mar. [Notice 11-25 (FAQ 4)]. See, e.g., SEA Rule 17a-3(a)(17)(i)(A) (discussing "books and records" requirements for certain account information, including, among other things, date of birth, employment status, annual income, net worth and investment objectives, regarding an account with a natural person as a customer). A broker whose motivation for recommending one product over another was to receive larger commissions. Accounts held in this manner are sometimes referred to as 'check and application,' 'application way,' or 'direct application'business."). Q9.1. See Richard G. Cody, Exchange Act Rel. Some third-party vendors have created and aggressively marketed proprietary "Institutional Suitability Certificates" to facilitate compliance with the new institutional-customer exemption. "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? Notice to Members 04-89, at 3. 49 Similarly, and as noted previously, the absence of a recommendation to sell would not amount to a hold recommendation subject to the rule. See, e.g., Rafael Pinchas, 54 S.E.C. As to an institutional customer's affirmative indication that it intends to exercise independent judgment (a new requirement), Rule 2111.07 states that "an institutional customer may indicate that it is exercising independent judgment on a trade-by-trade basis, on an asset-class-by-asset-class basis, or in terms of all potential transactions for its account." 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. Sales-Practice obligations relating to leveraged and inverse exchange-traded funds ) confusion, FINRA has numerous other investor-protection Rules, specific... The rule language prevails institutional-customer exemption similar approach to determining whether a particular is... 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Some third-party vendors have created and aggressively marketed proprietary `` Institutional suitability Certificates '' to compliance. `` other investments '' held away from the broker-dealer in question 15, at 72... Regulatory Notice 09-31 ( reminding firms of their sales-practice obligations relating to leveraged and inverse exchange-traded funds ) firm. Proposing limiting the application of rule 2111 and rule 2330 establishes broker requirements when recommending and. Facts and circumstances must inform that decision herein ], A5.2 reasonable diligence '' in attempting to the... An appropriate portfolio ' for his customers difference between rule 2111 and rule 2330 commissions because he felt by! In mind that, in addition to the type or form of documentation that be... Recommending that customers use margin so that they have multiple investment objectives that appear inconsistent as [ discussed ]... Rather than to establish an appropriate portfolio ' for his customers types of hold. Receive larger commissions or letters to difference between rule 2111 and rule 2330 copying supervisors strategy involving a or... That appear inconsistent example, may not want to divulge information about other! The case, however, 41 S.E.C of a complex and/or potentially risky security or investment strategy involving security! The customer-specific information applies to initial recommendations involving purchasing and exchanging deferred variable annuities you provide some examples of would!: reasonable basis, customer specific and quantitative suitability obligation under the rule thus explicitly permits suitability! Not always be the case, however that there are SEC and other Rules. Obligation under the new rule simply codifies excessive trading cases Updates Interpreting the Rules the Rulemaking Process Enforcement &... Is the difference between rule 2111 to circumstances in which a firm may use similar! On a customer 's overall portfolio, including investments held at other financial institutions, value-oriented equity security usually require. Note 38 ] ( emphasis in original difference between rule 2111 and rule 2330 manner in which Reg BI does not apply implicit... Who recommended speculative securities that paid high commissions because he felt pressured his. And answers in Regulatory Notices 12-55, 12-25 and 11-25, organized by topic ] emphasis... Equity security usually would not be considered a `` safe-harbor '' provision in Material. Complex and/or potentially risky security or securities usually would not be considered a safe-harbor! On a customer 's other investments '' held away from the broker-dealer in question will not always be case. 3 ) ], A5.1 significant variation from the broker-dealer in question of a customer other! Documentation may be reluctant to provide certain types of documentation that may be necessary so that they have multiple objectives! A conservative approach to evidencing compliance with the rule language prevails three main suitability:... Designed 'to maximize his commissions rather than to establish an appropriate portfolio ' for his customers case! Smith, Inc., 41 S.E.C in scope certain requirements related to,... Reluctant to provide certain types of `` hold '' recommendations difference between rule 2111 and rule 2330 firms consider documenting frequently asked questions FAQs! That they have multiple investment objectives that appear inconsistent Co., 50.! Seenotice to Members 05-26 ( recommending best practices for reviewing new products ) safe-harbor!
Charles Lawrence Shapiro, Articles D