Series 63: Performing Due Diligence

Performing Due Diligence

Broker-dealers and their associates have an obligation to perform reasonable diligence on the products that they sell. This means that they need to understand the nature of the securities (especially complex products) that they are recommending, including their risks and rewards. They also should be reasonably sure that the securities they are selling would be suitable for at least some customers. This is often referred to as the reasonable-basis suitability obligation.

FINRA has reminded broker-dealers that certain products require more due diligence because of their high level of risk. Regulation D private placements are one such product because they are usually illiquid, risky, and often little is known about the issuer.