New Suitability Standard
MSRB recently revised its suitability rule to conform to FINRA’s recent changes to its own suitability rule. Specifically, the amended rule recognizes three components with regard to a broker-dealer’s suitability obligations.
- • Reasonable-basis obligation. A dealer must understand the complexity and risks of a security or investment strategy and consciously determine whether it is suitable for at least some investors. If a dealer does not understand the risks and mechanics of mortgage-backed securities, for example, it is a suitability violation to recommend them to investors. In addition, if a dealer’s due diligence finds that the risks of a particular security are so great that even an aggressive investor would not be interested, it would be a suitabili