Suitability rules

Suitability rules

Policies and guidelines that brokers must use to ensure that investors have the financial means to assume risks that they wish to undertake. These are enforced by the NASD and other self-regulatory organizations.

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 rules.

Self-regulatory organizations (SROs), such as NASD, securities exchanges, and individual brokerage firms require that stockbrokers ensure that the investments they buy for you are suitable for you.

This means, for example, that the investments are appropriate for your age, financial situation, investment objectives, and tolerance for risk.

Brokerage firms require investors opening accounts to provide enough information about their financial picture to enable the broker to know what investments would be suitable.

References in periodicals archive ?
It's the 5 percent that end up on my desk and force us to take action at the state level and also to address new suitability rules at the NAIC.
Land suitability rules comprising soil, climate and landscape parameters were developed by TIA for 20 different enterprises using a four-class (well-suited, suitable, moderately suited, unsuited) most-limiting factor approach (Klingebiel and Montgomery 1961).
See Dan Jamieson, New Finra Suitability Rules Worry Industry:
In 2012, NEBDIAA meetings included a review of last year's new Form ADV Part 1 disclosure requirements, Department of Labor Regulation 408(b)(2) disclosure requirements, FINRA suitability rules for broker dealers, and a focus on social media activities by investment advisers and broker dealers.
Producers are scared about compliance and suitability rules.
That section states that the Commission [SEC] shall treat as an exempt security under Section 3(a)(8) of the 1933 act "any insurance or endowment policy or annuity contract or optional annuity contract" that isn't a variable contract and that, if issued on or after June 16, 2013, is issued by an insurer that has adopted suitability rules at least as stringent at the NAIC Suitability in Annuity Transaction Model Reg #275 of 2010 and any successor thereto.
Suitability rules for the location of future growth are specified using a PSGM table interface.
Portfolio Construction -- Construct and implement highly customized portfolios using eligibility and suitability rules, sophisticated analytics and expanded screening and filtering capabilities.
For example, investment advisers--including securities brokers and financial planners--must abide by the product suitability rules imposed by NASD Rule 2310 and NYSE 405, which entail matching the risk against the return of the investments they sell to the economic and risk-tolerance profile of the client.
The National Association of Insurance Commissioners in December terminated its effort to adopt a model law that sought to achieve uniformity in suitability rules.
While the approval and enforcement of suitability rules will not end unscrupulous sales practices, the GFOA's position is that the rules will provide guidance for all market participants in understanding their roles and responsibilities in the investment process.
In the same vein, the Board is concerned that suitability rules could impose a burden on the government securities market by adding to costs, delaying the execution of transactions and potentially limiting the range of legitimate investments available to a dealer's customers.