Evaluation of Customers - FINRA Conduct Rule 2310

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
Introduction
Related Articles
  1. Professionals

    Is a Google Robo-Advisor on the Horizon?

  2. Professionals

    Top Strategies on How to Become a Stock Broker

  3. Professionals

    Should You Add A Securities License To Your Qualifications?

RELATED TERMS
  1. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  2. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  3. Series 79

    A examination to ensure a candidate is qualified to become a ...
  4. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  5. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  6. Financial Advisor

    One who provides financial advice or guidance to customers for ...

RELATED FAQS

  1. How does a broker decide which customers are eligible to open a margin account?

    Learn how brokers have the sole discretion to determine which customers can open margin accounts, and understand the rules ...
  2. What are some of the major regulatory agencies responsible for overseeing financial ...

    Discover the specific responsibilities of some of the major regulatory agencies that oversee financial institutions in the ...
  3. Why is the Nasdaq more heavily weighted to tech stocks than other stock exchanges?

    Learn how the Nasdaq attracts technology companies due to its focus on using advanced financial technology to improve the ...
  4. How are margin calls regulated by the SEC?

    Learn how FINRA and the Federal Reserve Board regulate trading in margin accounts, and see how brokers can liquidate positions ...

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!