Suitability of Recommendations
FINRA rules require registered representatives to take the following into account before recommending investments to individual investors (non-institutional:
The customer's financial status, tax status, investment objectives and such other information used or considered to be reasonable in making recommendations to the customer.
FINRA rules require the representative to only make suitable recommendations and to deal fairly with customers. The following practices are examples of violations of the suitability rules:
- Recommending speculative low-priced securities without attempting to obtain information about the client's financial situation, needs, and other assets
- Borrowing or using customer's fund or securities
- Failing to describe important facts and risks about the security to each client
- Making trades of excessive size in a client's account
- Churning in a client account (making trades too frequently)
- Fraudulent activity - making unauthorized transactions in a customers account or setting up fictitious accounts to disguise prohibited activities
- Recommending trades that are too expensive, too risk or beyond the client's financial ability
Financial AdvisorFind out the history of FINRA, and how it's organized to monitor the markets and protect investors.
Financial AdvisorDiscover the differences between the Suitability and Fiduciary Standards when hiring a financial advisor.
Financial AdvisorAn alliance of public interest groups is pressuring FINRA to broaden its BrokerCheck tool.
Financial AdvisorLearn the five things an advisor should know before investing another person's money, with a focus on the FINRA "know your customer" rule.
Financial AdvisorFINRA has issued further guidance on its recruiting practices rule, which includes clarifying the definition of a former customer.
Financial AdvisorFINRA and other regulators are starting to put robo-advisors under a microscope. Here's what they are focusing on.
Financial AdvisorThis month, FINRA kicks off its culture examinations for brokerage firms. Here's how to cram for the test.
Financial AdvisorFinancial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
Financial AdvisorLearn about the history of FINRA and how this organization protects investors.
Managing WealthRIAs and brokers are held to different standards when providing investment advice. Here's how they differ.