National Association of Securities Dealers (NASD) Rule 2310, the
clarify" its predecessors, NASD Rule 2310 and NYSE Rule 405(1).
(38) However, FINRA modeled the current rule after NASD Rule 2310. (39)
NASD Rule 2310 required broker-dealers to have "reasonable
Modeled after NASD Rule 2310
, FINRA Rule 2111 (Suitability) requires firms and advisors to more thoroughly justify their securities recommendations (even recommendations to "stay the course," notes Kelley) through greater information gathering and documentation.
"The previous suitability rule (Rule 2310
) stated, 'In recommending to a customer the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs."
* If you recommend a security through a social media site, this triggers the requirements of NASD Rule 2310
When determining investment suitability, FINRAS Rule 2310
, Recommendations to Customers (Suitability), provides guidelines for the information you must obtain and the circumstances you must be aware of before recommending any security to any client.
NASD Rule 2310
requires that, before recommending the purchase, sale or exchange of a security, members must have a reasonable basis for believing that the transaction is suitable for the customer.
Another is Rule 2310, the "suitability" rule, which requires a broker-dealer to have reasonable grounds to believe a sales recommendation is suitable based on facts disclosed by the customer.
Buffie said the NASD believes that because of the complexity and many features available in variable products, the inherent long-term nature of the investment and the penalties for early surrender along with greater fees and expenses than some other securities, the suitability analysis required under Rule 2310 is even more complex.
If you do, you may trigger FINRA's Rule 2310
(on suitability), which may require prior approval and additional disclosures.