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
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
York State, including Buffalo, Binghamton, Syracuse, Watertown, Utica, Kingston, New York
City/Manhattan, Long Island, and everywhere in between, as well as in the surrounding states of
Massachusetts, Vermont, New Hampshire, Connecticut, and New Jersey.
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