Suitability Standard
A recommendation must be appropriate given the client's profile.
What is Suitability Standard?
The historical broker-dealer standard: recommendations must fit the client's objectives, risk tolerance, and circumstances, but need not be the best available option. Largely superseded for retail recommendations by Regulation Best Interest in 2020, though the concept still frames the analysis.
Suitability Standard: a worked example
A suitable but expensive fund could once be recommended over a cheaper identical one.
More terms in Regulation & Professional Duty
Fiduciary Duty
A legal obligation to act in the client's best interest.
Regulation Best Interest (Reg BI)
SEC rule requiring broker-dealers to act in a retail client's best interest.
Registered Investment Adviser (RIA)
A firm registered to give advice for a fee, holding fiduciary duty.
Broker-Dealer
A firm that executes trades as agent (broker) or principal (dealer).
FINRA
The self-regulatory organization overseeing broker-dealers.
Securities and Exchange Commission (SEC)
The federal agency regulating securities markets.
SIPC
Insurance against broker failure - not against investment losses.
Securities Act of 1933
The 'truth in securities' law governing new issues.