FINRA Issues Suitability Best Practices Following Exams
FINRA has issues a Regulatory Notice offering best practices on suitability based on observations from recent exam findings. FINRA indicates that the most common deficiency was the failure to implement adequate procedures for hold recommendations. To ensure reasonable-basis suitability (i.e. product suitability), FINRA say that firms should consider new product committees to vet new products, post due diligence materials for access by all reps, and provide product training. For customer-specific suitability, FINRA says that many firms have implemented or altered electronic customer relationship systems to capture customer information, flagged accounts without full information, and halted trading in certain accounts with certain profiles. For quantitative suitability, firms have examined compensation arrangements. Best practices for hold recommendations include creating a “hold blotter” and using a clearing firm’s notes functionality to record conversations.
OUR TAKE: This Regulatory Notice is a good primer on FINRA’s suitability rules, as it covers many of the topics previously covered in various notices and statements. As the SEC also believes that fiduciary responsibility includes suitability, advisers should also consider these practices.