suitability rule

Suitability Rule

A stated or implied requirement by a regulatory body that a broker or investment adviser must reasonably believe that a certain investment decision will benefit a client before making a recommendation to him/her. That is, the broker or investment adviser must act in good faith, and may not knowingly recommend bad investments. Different regulators and self-regulating organizations incorporate suitable rules in different places in their bylaws. Two commonly referenced suitability rules are Rule 2310 for the Financial Industry Regulatory Authority and Rule 405 for the NYSE. See also: Due diligence, Prudent-person rule, Twisting.

suitability rule

A National Association of Securities Dealers guideline that requires a brokerage firm to have reasonable grounds for believing a recommendation fits the investment needs of a client. See also Rule 405.
References in periodicals archive ?
We wouldn't have gotten the Harkin Amendment if we didn't have the suitability rule in place.
Perhaps most importantly, advisors can determine whether a portfolio's downside risk exceeds the client's risk profile - an important consideration for both fiduciaries who must prove they know their clients and put the clients best interests first, and registered representatives who must adhere to FINRA's suitability rule 2111.
Applicability of the Suitability Rule to Investment
The new suitability rule could be stretched far enough to apply to this communication, though that would be an unrealistic and harsh standard for an impromptu and very preliminary marketing pitch.
In connection with its continuing process of reconciling regulations as part of the FINRA consolidated rulebook, FINRA had proposed changes to FINRA Rule 2090, the know your customer rule, and Rule 2111, the suitability rule.
Each suitability rule created by the user belongs to a specific land-use type.
Public investors have been heartened recently by three events that continue to emphasize the importance of suitability as a primary concern in the investment of public funds: the elimination of an onerous suitability provision from proposed federal legislation, final Securities and Exchange Commission (SEC) approval of a suitability rule, and the withdrawal of a proposed standardized investment form in the State of Texas.
Also, the bank regulatory agencies are hoping to propose a suitability rule soon for banks that sell Government securities.
The strengthened suitability rule from FINRA is extremely important, as it serves to further protect end investors and the advisors and firms that serve them," said Will Rhode, Director of Fixed Income Research at Tabb Group.
They also hold that the suitability rule leaves too many loopholes for investment representatives, who may saddle clients with costly but poor-performing products.