Customer Accounts, Suitability & Taxation

Reg BI requires a broker-dealer to act in the retail customer's best interest at the time a recommendation is made, without placing the firm's financial interests ahead of the customer's interests.

Reasonable-basis suitability, customer-specific suitability, and quantitative suitability. All three must be met for a recommendation to be in the customer's best interest.

Reasonable-basis suitability requires the rep to understand the potential risks, rewards, and costs of a product well enough to reasonably believe it could be suitable for at least some investors, based on reasonable diligence.

It requires a reasonable belief that the specific recommendation is suitable for that particular customer based on the customer's investment profile, including objectives, risk tolerance, financial situation, and needs.

Quantitative suitability addresses whether a series of recommended transactions, even if individually suitable, is excessive when taken together. It targets churning, the excessive trading of an account to generate commissions.

Age, financial situation and needs, tax status, investment objectives, investment experience, time horizon, liquidity needs, and risk tolerance.