What is FINRA Rule 2111 "Suitability"?

FINRA Rule 2111, titled "Suitability," is a critical regulation governing recommendations made by broker-dealers and their associated persons like registered advisors. It aims to protect investors by ensuring recommended investments align with their unique financial circumstances and investment objectives.

Here's a breakdown of the rule's key aspects:

Core Principle: A member firm or associated person must have a reasonable basis to believe that any recommended transaction or investment strategy involving securities is suitable for the customer.

Determining Suitability: This requires reasonable diligence to collect and assess information about the customer's investment profile, including:

Beyond Information Gathering:

Customer Financial Ability: The rule also prohibits recommending investments or strategies exceeding the customer's financial ability to meet the commitment.

Additional Information:

Significance: FINRA Rule 2111 plays a vital role in safeguarding investors by ensuring recommendations are aligned with their individual circumstances and protecting them from unsuitable investments. Understanding this rule empowers investors to ask informed questions and hold their financial advisors accountable for fulfilling its requirements.