Suitability

Prior to recommending any transaction to a retail customer, a dealer must exert “best efforts” to obtain information concerning the customer’s financial status, tax status, investment objectives, and any other information pertinent to making suitable recommendations on the customer’s behalf. This is generally referred to as suitability information, meaning the information that is necessary to be able to recommend suitable transactions to a particular client.

Dealers are not held to such strict suitability rules for institutional accounts. If a dealer believes that the institutional client is capable of independently evaluating risk and the client regularly makes independent investment decisions, the dealer’s suitability requirements are fulfilled.