The purpose of this paper is to explain two new FINRA rules: Rule 2090 (Know Your Customer) and Rule 2111 (Suitability).
The paper explains the two rules, the expanded requirements in the new suitability rule, and an expansion in the list of factors an associated person is required to consider as part of a customer's investment profile before making a recommendation.
FINRA's new suitability rule is notable for three reasons: the revised rule covers investment strategies and explicit recommendations to hold securities; it expands the necessary factors for making a suitability determination; and it includes definitions for three specific suitability evaluations.
Prior to the effective dates of the new rules, most likely in the Fall of 2011, firms may want to consider whether to develop additional procedures to gather customer “investment profile” information and whether to memorialize that information in written form.
This paper provides practical guidance from experienced financial services lawyers.
