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.