Suitability & Recommendations

Core Standard

• When making a recommendation, the representative and firm must have a reasonable basis to believe the recommendation is in the retail customer's best interest and does not place the firm's interests ahead of the customer's. This involves understanding risks, rewards, costs, alternatives, and the customer's investment profile.
• Relevant profile factors include age, tax status, time horizon, liquidity needs, financial situation, risk tolerance, investment experience, and objectives such as growth, income, speculation, or preservation of capital.

Product and Strategy Fit

• Recommendations must make sense both generally and specifically. Highly leveraged or illiquid products may be inappropriate for investors seeking safety, current income, or short-term liquidity.
• Concentration, excessive trading, and unsuitable account-type recommendations can all create regulatory problems. A recommendation to roll over, switch share classes, or use margin must be supported by customer benefit.
• Costs matter. Front-end sales loads, deferred charges, internal fund expenses, markups, and tax consequences all affect best-interest analysis.

Communications and Documentation

• Firms should document the basis for recommendations, especially for complex products, variable contracts, options, and retirement rollovers.
• Educational material is not automatically a recommendation, but once the rep steers a client toward a specific security or strategy, recommendation obligations attach.

Series 7 focus

• Expect fact patterns asking which product best matches a customer's objective, tolerance for loss, and time horizon, or where a recommendation is inappropriate because of cost, liquidity, or concentration risk.