Broker-Dealer Suitability
Broker-dealers must believe on reasonable grounds that the transactions or strategies they recommend are suitable for an individual customer. Firms may approve an account only after conducting a suitability analysis, based on the firm’s due diligence in understanding the risks of the recommendations they make and the customer’s personal and investment profile. They must make “reasonable efforts” when opening an account to collect and maintain this information.
Specifically, FINRA recognizes three components with regard to suitability obligations:
- • Reasonable-basis obligation. A broker-dealer must understand the complexity and risks of a security or investment strategy and consciously determine whether it is suitable for at least some investor
