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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
Latest News
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.

Latest News More on FINRA Rule 2111 

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