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FINRA Rule 2111

Requires broker-dealers and their associated persons to have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer based on specific information obtained through reasonable diligence.

Rule Overview

Jurisdiction: United States

Regulator: FINRA

Topic: Consumer Protection

Overview
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Further Reading

Known as the Suitability Rule, obligates firms and representatives to evaluate whether a recommendation is appropriate for a particular customer by considering factors such as the customer’s investment profile, including age, financial situation, risk tolerance, investment objectives, and experience.

It includes three key components: reasonable-basis suitability (understanding the product or strategy), customer-specific suitability (matching it to the individual client), and quantitative suitability (avoiding excessive or unsuitable trading). The rule applies to both explicit recommendations and implicit strategies, including hold recommendations.

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Further Reading

FINRA Rule 2111 FAQs Go to https://www.finra.org/rules-guidance/key-topics/suitability/faq 2019 Report on Examination Findings and Observations Go to https://www.finra.org/rules-guidance/guidance/reports/2019-report-exam-findings-and-observations/suitability FINRA Reg Notice 20-18 Go to https://www.finra.org/rules-guidance/notices/20-18