Understanding the FINRA Suitability Rule

The Financial Industry Regulatory Authority (FINRA) has a specific set of suitability obligations that stockbrokers and financial institutions must adhere to that help ensure they are following the duty of fair dealing.

Generally, suitability refers to a broker making an investment recommendation that has the potential to assist in accomplishing their client’s goals as described in their investment portfolio. There are three components that come into play when determining whether an opportunity is suitable, and we review these suitability requirements in further detail below.

Reasonable-Basis Suitability

For an investment recommendation to be suitable, the stockbroker must have reasonable basis to believe that the opportunity has the potential to benefit their investor. The broker must do their due diligence in this area by researching the potential rewards and risks involved before making the decision to present the opportunity to their client.

Customer-Specific Suitability

An investment opportunity needs to be suitable for each particular investor, as per their individual objectives. The investor’s goals are described in their investment portfolio and a responsible stockbroker will review their client’s portfolio factors to determine whether the opportunity in question is suitable for the particular investor.

Quantitative Suitability

Quantitative suitability may sound complex, but essentially it means that the broker must have a reasonable basis to believe in an investment recommendation, that the opportunity is suitable for this individual investor, and that the opportunity is still a good option when taking the investor’s entire investment portfolio transactions and goals into consideration.

Contact an Experienced FINRA Lawyer

If you have been the victim of a stock loss and you believe it may have been caused by an unsuitable recommendation by your stockbroker, contact a qualified FINRA lawyer at Meissner Associates today. You can give our office a call at 212-764-3100 or fill out the provided contact form to schedule your free, no-obligation consultation.