FINRA Rule 2111 (Suitability) imposes three main suitability obligations on broker-dealers and their associated persons:
- Reasonable-Basis Suitability (a reasonable basis to believe, based on reasonable due diligence, that a recommendation is suitable at least for some investors)
- Customer-Specific Suitability (a reasonable basis to believe that a recommendation is suitable for the specific customer based on the customer’s investment profile
- Quantitative Suitability (a reasonable basis to believe, when possessing actual or de facto control over a customer account, that a series of recommended transactions are not excessive or unsuitable for the customer in the customer’s investment profile)
We discuss each of these suitability obligations in greater detail below.