Suitability Rule
FINRA Rule 2111 -- the older standard requiring brokers to have a reasonable basis to believe a recommendation is suitable for the customer's investment profile (objectives, risk tolerance, time horizon, liquidity needs, etc.). Has three components: reasonable-basis suitability (the product itself is appropriate for SOMEONE), customer-specific suitability (it is appropriate for THIS customer), and quantitative suitability (a series of trades is not excessive given the profile). Since June 30, 2020, Rule 2111 does not apply to recommendations covered by Reg BI (Supplementary Material .08), so for a broker-dealer's retail customers Reg BI is the standard; suitability still governs recommendations Reg BI does not cover, such as those to institutional customers.
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Related terms
Anti-Money-Laundering (AML) · Currency Transaction Report (CTR) · Investment Policy Statement (IPS) · Know Your Client (KYC) · Onboarding Workflow · Politically Exposed Person (PEP)
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