A customer has been determined to include “a person who is not a broker or dealer who opens a brokerage account at a broker dealer or purchases a security for which the broker-dealer receives or will receive, directly or indirectly, compensation, even though the security is held at an issuer, the issuers affiliate or the custodial agent (e.g. direct application, business, investment program, securities or private placements), or using another similar arrangement.
FINRA Suitability Rule 2111 has been determined to apply when a broker-dealer or Registered Representative makes a recommendation to a potential investor, who then becomes a customer.
The Rule focuses on whether the recommendation was suitable when it was made. Additionally, the new suitability rule has also been determined to cover a broker-dealer’s or Registered Representative’s recommendation of an “investment strategy” involving both a security and a non-security investment: for example, a brokerage recommendation of an investment strategy to use home equity to purchase securities or to liquidate securities to purchase an investment-related product that is not a security.
The Regulatory Notice also addresses broker obligations involving a recommendation to purchase a non-security investment in determining which securities he or she should sell to fund the purchase of the non-security investment. The Notice also states that a brokerage firm must have a supervisory system reasonably designed to achieve compliance with applicable securities laws, regulations, and FINRA rules when brokers recommend investment strategies involving a security and a non-security investment.
We offer a free initial consultation to investors who feel they may have been victimized by the improper recommendation of an improper investment strategy, or non-security product or improper outside business activity.
The Law Offices of Timothy J. O’Connor is one of the only law firms practicing securities law in the Tri-City Capital District of