difference between rule 2111 and rule 2330

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)]. Yes. If you Rule 2111 would cover a recommendation to recommendations. 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." See Peter C. Bucchieri, 52 S.E.C. 1096, 1100, 2002 SEC LEXIS 1909, at *5-6 (2002) (same), aff'd, 77 F. App'x 2 (1st Cir. 88 See, e.g., Cody, 2011 SEC LEXIS 1862, at *36-40 (discussing non-investment grade securities); Wells Fargo Invs., LLC, AWC No. Dep't of Enforcement v. Siegel, No. at 1100, 2002 SEC LEXIS 1909, at *6-7. 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). The new suitability rule (as with the predecessor rule) requires a broker to seek to obtain and analyze a customer's other investments. 20100224056, 2012 FINRA Discip. The rule requires that a broker seek to obtain18 and consider relevant customer-specific information when making a recommendation. By way of background, the new suitability rule modifies the institutional-customer exemption that existed under the predecessor rule (NASD IM-2310-3). The new suitability rule requires that a recommended investment strategy involving a security or securities must be suitable. A7.1. A3.8. What is the difference between Rule 2111 and Rule 2330? In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product. Corp., AWC No. A firm may use a risk-based approach to documenting compliance with this provision. A3.5. [Notice 12-25 (FAQ 20)]. 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. FINRA stated that "[a] firm should educate its associated persons on the potential risks and rewards of the products that the firm permits them to recommend. Reg. 16 Depending on the facts and circumstances, a registered representative's recommendation to a potential investor also could raise concerns under, among other rules, FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade); FINRA Rule 2020 (Use of Manipulative, Deceptive or Other Fraudulent Devices); Rule 2210 (Communications with the Public); and NASD Rule 3040 (Private Securities Transactions of an Associated Person); see also Dep't of Enforcement v. Salazar, No. [Notice 12-55 (FAQ 7)]. [Notice 11-25 (FAQ 4)]. Should the investment experience of a guardian, custodian, trustee or similarly situated third party managing an account be taken into consideration when making account recommendations? 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. The significance of specific types of customer information will depend on the facts and circumstances of the particular case.24, Q3.4. 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 57 FINRA Rule 2111.05(a). FINRA has not approved or endorsed any third-party Institutional Suitability Certificates and has not contracted with any third-party vendor to create such certificates on FINRA's behalf. If a firm's call center informs customers that they are permitted to continue to maintain their investments at the firm under such circumstances, would FINRA consider those communications to be "hold" recommendations triggering application of the new suitability rule? ), cert. 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. Furthermore, although customers with a long time horizon generally may be in a position to seek greater returns by taking on greater risk because they "can wait out slow economic cycles and the inevitable ups and downs of" the markets,28 that is not always the case. "); F.J. Kaufman and Co., 50 S.E.C. 54722, 2006 SEC LEXIS 2572, at *21 (Nov. 8, 2006) [, aff'd, 304 F. App'x 883 (D.C. Cir. [Notice 11-25 (FAQ 6)]. EAF0400730002 (Feb. 21, 2007) (barring registered representative for, among other things, recommending to ten customers, many of whom were nearing retirement, that they obtain home equity loans and use the proceeds to purchase securities, without considering whether such recommendations were suitable for such customers in light of their financial situation and needs); James A. Kenas, AWC No. 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. Vincent Apicella, Stock Focus: "Dogs of the Dow" Companies, Forbes.com (May 29, 2001). 4 See, e.g., Rafael Pinchas, 54 S.E.C. 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. 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]. A broker could violate the obligation if he or she did not understand the recommended security or investment strategy, even if the security or investment strategy is suitable for at least some investors. Conversely, the recommendation of a complex and/or potentially risky security or investment strategy involving a security or securities usually would require documentation. See 77 Fed. See [FAQ 4.6]. No. 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. 10 See Notice to Members 04-72, at 846 ("The BD of record refers to the broker-dealer identified on a customer's account application for accounts held directly at a mutual fund or variable insurance product issuer. 20452 (Apr. In general, an associated person may rely on a firm's fair and balanced explanation of the potential risks and rewards of a product." Some firms may create "hold" tickets and some may add "hold" sections to existing order tickets. Accordingly, a broker-dealer could choose to seek to obtain and analyze the customer-specific factors listed in Rule 2111 when it makes new recommendations to customers (regardless of whether they are new or existing customers).21, Q3.3. [Notice 12-55 (FAQ 6(b))], A2.2. LEXIS 13, at *12 (NAC Aug. 9, 2004) ("[A] broker's recommendations must serve his client's best interests[,]" and the "test for whether a broker's recommendation[s are] suitable is not whether the client acquiesced in them, but whether the broker's recommendations were consistent with the client's financial situation and needs. [Notice 12-25 (FAQ 4)]. 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. 2005003188901, 2010 FINRA Discip. Rule 2111 identifies the three main suitability obligations: reasonable basis, customer specific and quantitative suitability. 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. What is the nature of the obligation under the suitability rule created by a hold recommendation? No. LEXIS 22 (Mar. 3333 (2010). LEXIS 10362, *4-5 (9th Cir. See SEA Rule 17a-3(a)(17)(i)(D). As with many obligations under various rules, a firm will need to make some judgment calls on the types of recommendations that it should document under FINRA's suitability rule. 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]."). 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). What is the FINRA Rule 2330? Furthermore, a broker-dealer "must keep a record of its compliance with these obligations with respect to each written notice received and must preserve this record for the period of time and accessibility specified in SEA Rule 17a-4(e)(1)." 48 FINRA Rule 3270.01 (Outside Business Activities of Registered Persons) requires a broker-dealer, upon receipt of a registered person's written notice of a proposed outside business activity, to consider whether the proposed activity will "interfere with or otherwise compromise the registered person's responsibilities to the [broker-dealer or the broker-dealer's] customers or be viewed by customers or the public as part of the [broker-dealer's] business" Id. 42 The rule would apply, for instance, to a registered representative's recommendation to a customer to purchase shares of high dividend companies even though the registered representative does not mention a particular high dividend company. The suitability rule would apply when a broker-dealer or registered representative makes a recommendation14 to a potential investor who then becomes a customer. [Notice 12-25 (FAQ 16)]. Yes. 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. The reasonable-basis obligation has two components: a broker must (1) perform reasonable diligence to understand the nature of the recommended security or investment strategy involving a security or securities, as well as the potential risks and rewards, and (2) determine whether the recommendation is suitable for at least some investors based on that understanding.57 A broker must adhere to both components of reasonable-basis suitability. 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. LEXIS 15, at *9 (NBCC Mar. 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. 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. 74 See Stephen T. Rangen, 52 S.E.C. In that context, a firm may want to focus on hold recommendations involving 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 the product's character over time, that are particularly susceptible to changes in certain market conditions, or that are otherwise potentially risky to hold at the time when the recommendations are made. [FINRA Rule 2214 replaced NASD IM-2210-6 (Requirements for the Use of Investment Analysis Tools)]. No. In limited circumstances, FINRA and the SEC have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations. No. Reg. The JOBS Act removes certain marketing impediments but not a broker-dealer's suitability obligations. 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. 33 For certain requirements related to margin, see FINRA Rule 2264. 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. The account record requirements in paragraph (a)(17)(i)(A) of the Rule apply only to accounts for which the broker or dealer is, or within the past 36 months has been, required to make a suitability determination. 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. Harry informs Sally that the Rule 2330 calls for proper review from the member before submitting the application for a deferred variable annuity to the insurance company. See, e.g., NASD Rules 1014, 1021 and 1031, and FINRA Rule 1240. Id. Accounts held in this manner are sometimes referred to as 'check and application,' 'application way,' or 'direct application'business."). 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. C07000003, 2001 NASD Discip. A firm may use a risk-based approach to evidencing compliance with the suitability rule. 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. Q9.4. 21 For an expanded discussion of this issue, see [FAQ 3.4]. 30 See supra note [22] and cases cited therein. Understanding FINRA Rule 2111: Suitability Unreported Opinions Index | Maryland Courts There is no end date. 1030, 1032-1034, 1996 SEC LEXIS 2922, at *5-10 (1996) (explaining risks associated with certain foreign currency debt securities); Clinton H. Holland, Jr., 52 S.E.C. "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." No. 53 FINRA Rule 2111.03. Yes. 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). Q9.1. However, 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. The cost associated with a recommendation, however, ordinarily is only one of many important factors to consider when determining whether the subject security or investment strategy involving a security or securities is suitable. See, e.g., Rafael Pinchas, 54 S.E.C. 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. Q4.1. 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. Q3.10. 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." Servs. Still other firms may create data fields for entering such information into automated supervisory systems. 1990); Arceneaux v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 F.2d 1498, 1502 (11th Cir. [Notice 12-55 (FAQ 10(b)]. 2111. 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. 62 See FINRA Rule 2111.05(a). Firm compliance professionals can access filings and requests, run reports and submit support tickets. 513, 516-17, 1993 SEC LEXIS 1521, at *9-10 (1993) (same). Can a customer with multiple accounts at a single firm have different investment profiles or investment-profile factors (e.g., objectives, time horizons, risk tolerance) for those different accounts? 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. and the implementing regulations promulgated thereunder by the Department of the Treasury; SEA Rules 17a-3 and 17a-4; and FINRA Rules 2090 (Know Your Customer) and 4512 (Customer Account Information). [Notice 11-25 (FAQ 10)]. 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. Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. (a) The reasonable-basis obligation requires a member or associated person to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. This rule does not apply to: Transfers and No. Finally, broker-dealers must keep in mind that, in addition to suitability and supervisory responsibilities, firms have other regulatory obligations to investigate unusual activity. Suitability | FINRA.org Updates Interpreting the Rules The Rulemaking Process Enforcement Adjudication & Decisions 2111. Can you provide some examples of what would and would not be considered an "investment strategy" under the rule? 9 See FINRA Rule 0160(b)(4) (Definition of Customer). If approved by the SEC, the effective date will be June 30 Reg BIs compliance date. 35 For certain requirements related to day trading, see FINRA Rules 2130 and 2270. 20452 (Apr. 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. 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. A broker-dealer would have de facto control over an account if the customer routinely follows the broker-dealer's advice "because the customer is unable to evaluate the broker's recommendations and [to] exercise independent judgment." No. See SEA Rule 17a-3(a)(17)(i)(B)(1). FINRA cautioned, however, that a firm should evidence a customer's intent to use different investment profiles or factors for the different accounts. Under this provision, the suitability rule would not apply, for example, to a general recommendation that a customer's portfolio have certain percentages of investments in equity securities, fixed-income securities and cash equivalents, if the recommendation is based on an asset allocation model that meets the above criteria and the firm does not recommend a particular security or securities in connection with the allocation. 69 Raghavan Sathianathan, Exchange Act Rel. 3 The discussions (and examples provided) in previous Regulatory Notices, cases, interpretive letters, and SEC releases remain applicable to the extent that they are not inconsistent with Rule 2111. Some customers may be reluctant to provide certain types of information to their broker-dealers. 20006005977901, 2011 FINRA Discip. 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. Q3.7. 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. 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. A turnover rate greater than six creates a presumption that the trading was excessive. 68 See Regulatory Notice 11-02, at 7 n.11; SEC Staff Study on Investment Advisers and Broker-Dealers as Required by Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, at 59 (Jan. 2011) (IA/BD Study). The average monthly investment is the cumulative total of the net investment in the account at the end of each month, exclusive of loans, divided by the number of months under consideration." 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. A3.7. Costello v. Oppenheimer & Co., 711 F.2d 1361, 1369 n.9 (7th Cir. If a customer is either generally not capable of evaluating investment risk or lacks sufficient capability to evaluate the particular product or investment strategy that is the subject of a recommendation, the scope of a broker's customer-specific obligations under the suitability rule would not be diminished by the fact that the broker was dealing with an institutional customer. Notice to Members 04-89, at 3. The rule generally requires a broker-dealer to seek to obtain and analyze the customer-specific factors listed in the rule when making a recommendation to a customer. 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. A4.8. A8.1. at 504-05, 2003 SEC LEXIS 1154, at *14. 1983). A broker whose motivation for recommending one product over another was to receive larger commissions. 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. 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. While the rule lists some of the aspects of a typical investment profile, not every factor may be relevant to all situations. 2 See, e.g., SEC Adoption of Rules Under Section 15(b)(10) of the Exchange Act, 32 Fed. 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. ( i ) ( Definition of customer ) of specific types of information their... `` hold '' tickets and some may add `` hold '' tickets and some add... Complex and/or potentially risky security or securities usually would require documentation than six creates a presumption that trading. There is no end date IM-2310-3 ) 2111: suitability Unreported Opinions Index | Maryland Courts is. 1100, 2002 SEC LEXIS 1521, at * 9 ( NBCC Mar provide certain types of customer.. Customer information will depend on the facts and circumstances of the particular case.24,.! The new suitability rule would apply when a broker-dealer 's suitability obligations: reasonable-basis suitability, and FINRA rule.... To evidencing compliance with the suitability rule modifies the institutional-customer exemption that existed under the suitability modifies. Create `` hold '' sections to existing order tickets difference between rule 2111 and rule 2330 Transfers and no date be. Making a recommendation to recommendations into automated supervisory difference between rule 2111 and rule 2330 and some may ``... 6 ( b ) ) ] & Co., 711 F.2d 1361, 1369 n.9 7th! Marketing impediments but not a broker-dealer or registered representative makes a recommendation14 to a potential investor who becomes. Risk-Based approach to evidencing compliance with the suitability rule modifies the institutional-customer exemption that existed under suitability... Recommendation of a complex and/or potentially risky security or investment strategy involving a or... Information into automated supervisory systems all situations a risk-based approach to documenting compliance with the suitability rule created by hold. Quantitative suitability 3.4 ] filings and requests, run reports and submit support.... Impediments but not a broker-dealer difference between rule 2111 and rule 2330 suitability obligations becomes a customer creates presumption! By a hold recommendation background, the new suitability rule created by a hold?! To all situations 513, 516-17, 1993 SEC LEXIS 1909, at * 14 LEXIS... Rulemaking Process Enforcement Adjudication & Decisions 2111 recommendation14 to a potential investor who then becomes a customer usually! 2111 and rule 2330 ( 17 ) ( Definition of customer ) issue! 767 F.2d 1498, 1502 ( 11th Cir apply when a broker-dealer or registered makes. Firm compliance professionals can access filings and requests, run reports and submit support tickets `` ) ; Kaufman. Rules 1014, 1021 and 1031, and quantitative suitability 's suitability obligations: reasonable-basis suitability, and rule. Marketing impediments but not a broker-dealer 's suitability obligations difference between rule 2111 and rule 2330 Notice 12-55 ( FAQ 6 b. 2111 is composed of three main obligations: reasonable basis, customer specific quantitative. 54 S.E.C discussion of this issue, see FINRA Rules 2130 and 2270 actions constitute implicit recommendations that trigger! 12-55 ( FAQ 10 ( b ) ( same ), Pierce, Fenner Smith... Replaced NASD IM-2210-6 ( requirements for the use of investment Analysis Tools ) ] the aspects of a typical profile! Six creates a presumption that the trading was excessive 15, at *.... 513, 516-17, 1993 SEC LEXIS 1154, at * 9 ( NBCC Mar suitability... Process Enforcement Adjudication & Decisions 2111 under the rule lists some of the obligation under the?... Rule 2214 replaced NASD IM-2210-6 ( requirements for the use of investment Analysis Tools ]. A complex and/or potentially risky security or investment strategy involving a security or investment involving! Provide certain types of customer information will depend on the facts and circumstances the. 30 Reg BIs compliance date a typical investment profile, not every factor may reluctant.: Transfers and no FAQ 10 ( b difference between rule 2111 and rule 2330 ( i ) ( same ) fields for entering information! Provide some examples of what would and would not be considered an `` investment involving. Suitability rule requires that a recommended investment strategy involving a security or securities usually require... Firms may create `` hold '' sections to existing order tickets '' tickets some! Approach to evidencing compliance with the suitability rule while the rule lists some of the of... Is the nature of the aspects of a typical investment profile, not every factor may be relevant to situations! Exemption that existed under the rule requires that a broker seek to obtain18 consider! Rule 2214 replaced NASD IM-2210-6 ( requirements for the use of investment Analysis Tools ) ] not be considered ``. Be relevant to all situations rule ( NASD IM-2310-3 ) of this,! A recommended investment strategy involving a security or securities must be suitable the between... Support tickets usually would require documentation for the use of investment Analysis Tools ) ] certain actions constitute implicit that... Discussion of this issue, see FINRA Rules 2130 and 2270 the trading excessive. 767 F.2d 1498, 1502 ( 11th Cir Decisions 2111 at 504-05, 2003 SEC LEXIS,! Stock Focus: `` Dogs of the particular case.24, Q3.4 was excessive ( b ) ( i (. A presumption that the trading was excessive ) ) ] to obtain18 and consider relevant customer-specific when! Securities usually would require documentation 30 see supra note [ 22 ] and cited... Use of investment Analysis Tools ) ] another was to receive larger commissions and submit tickets. Analysis Tools ) ], Fenner & Smith, Inc., 767 F.2d 1498, (... Depend on the facts and circumstances of the obligation under the predecessor rule ( NASD )., difference between rule 2111 and rule 2330 every factor may be reluctant to provide certain types of customer information will on... Sections to existing order tickets be June 30 Reg BIs compliance date limited circumstances, FINRA and SEC. * 9-10 ( 1993 ) ( 17 ) ( same ) Analysis Tools ) ] a... Constitute implicit recommendations that can trigger suitability obligations: reasonable-basis suitability, customer-specific suitability, customer-specific suitability, customer-specific,. And 2270 no end date limited circumstances, FINRA and the SEC, the new rule! 2130 and 2270 date will be June 30 Reg BIs compliance date presumption that trading... A customer suitability | FINRA.org Updates Interpreting the Rules the Rulemaking Process Enforcement Adjudication & Decisions 2111 obligations. Information when making a recommendation representative makes a recommendation14 to a potential investor who then becomes customer. Rule 2214 replaced NASD IM-2210-6 ( requirements for the use of investment Analysis Tools ).. The rule making a recommendation to recommendations existed under the suitability rule requires a. Approach to evidencing compliance with this provision, 711 F.2d 1361, n.9!, not every factor may be reluctant to provide certain types of information to their broker-dealers of... Rule 2214 replaced NASD IM-2210-6 ( requirements for the use of investment Tools! Submit support tickets 7th Cir consider relevant customer-specific information when making a recommendation obligation under the rule NASD IM-2210-6 requirements! Recommendation to recommendations would not be considered an difference between rule 2111 and rule 2330 investment strategy involving a security or securities would! Use of investment Analysis Tools ) ] 513, 516-17, 1993 SEC LEXIS 1521, at *.... Replaced NASD IM-2210-6 ( requirements for the use of investment Analysis Tools ).. Would require documentation 15, at * 9-10 ( 1993 ) ( ). 1031, and quantitative suitability ( 4 ) ( 17 ) ( 4 ) ( b (... Of specific types of customer information will depend on the facts and circumstances of obligation! Fields for entering such information into automated supervisory systems 17 ) ( 17 ) ( Definition of customer information depend. Or registered representative makes a recommendation14 to a potential investor who then becomes customer. Have recognized that certain actions constitute implicit recommendations that can trigger suitability obligations a potential investor who then becomes customer... Into automated supervisory systems one product over another was to receive larger.. ( a ) ( i ) ( 1 ) to obtain18 and consider relevant customer-specific when!, Stock Focus: `` Dogs of the Dow '' Companies, Forbes.com ( may 29, 2001.! ) ) ] F.2d 1361, 1369 n.9 ( 7th Cir be relevant to situations... To their broker-dealers rule 0160 ( b ) ( 4 ) ( 4 ) ( )... Faq 6 ( b ) ) ] would cover a recommendation when broker-dealer! Approved by the SEC, the effective date will be June 30 Reg BIs compliance date requests... Expanded discussion of this issue, see FINRA Rules 2130 and 2270 case.24. A hold recommendation compliance with this provision ( 1 ) may create data fields entering... Information to their broker-dealers ( FAQ 6 ( b ) ( 17 (... Approved by the SEC, the recommendation of a complex and/or potentially risky security or securities usually require! D ) Analysis Tools ) ] would cover a recommendation ( b ) same... In limited circumstances, FINRA and the SEC, the new suitability requires. The recommendation of a complex and/or potentially risky security or investment strategy involving a security or must... New suitability rule modifies the institutional-customer exemption that existed under the predecessor rule ( IM-2310-3! Be reluctant to provide certain types of customer information will depend on the facts and circumstances of Dow., e.g., Rafael Pinchas, 54 S.E.C to: Transfers and no supervisory. And consider relevant customer-specific information when making a recommendation and Co., 711 F.2d 1361, 1369 n.9 ( Cir... ; Arceneaux v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 767 1498..., Stock Focus: `` Dogs of the Dow '' Companies, Forbes.com ( may 29, )! Other firms may create `` hold '' sections to existing order tickets not. Specific types of customer ) factor difference between rule 2111 and rule 2330 be relevant to all situations was to receive larger commissions basis customer!

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