Products made available through FINRA member firms must meet a reasonable basis suitability requirement. The reasonable basis suitability requirement has two parts. The member must understand the risks and performance characteristics of the investment and the agents offering the products for sale must understand the risks and performance characteristics of the investment. The member is required to educate its agents about the risks and rewards of the products it allows agents recommend to clients.
If a member maintains a new product committee to review potential investments offered to clients the committee must believe that the products are suitable for at least some of the firm’s clients. FINRA member firms should train representatives about the characteristics relating to specific products including product features, risks and pricing. Members should also provide representatives with suitability guidance for recommending products and product related risk assessments and reviews. It is the responsibility of the representative to meet the client specific suitability requirement. The representative”s principal will review the transaction promptly to ensure client specific suitability
Take Note!
If the firm’s product committee understands the risks and allows representatives to offer the securities to clients, but the representative does not, neither the firm nor the representative has met their obligations under suitability standards. Preparing to take a FINRA securities exam? When taking a principal level exam such as the series 24, 26 or series 10 exam, being able to supervise the recommendations made by agents will be one of the key topics tested. Our textbooks, exam prep software and video training classes will ensure you are ready to ace your exam.
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