Suitibility

Question 1

Reasonable-basis Suitability

Answer 1

the registered representative has to have a reasonable basis to believe that a recommendation is suitable for at least some investors.
-must recognize the potential risks & rewards associated w/ the recommended security or strategy
-if you can’t explain the risks when recommending a security or strategy, you are violating the reasonable-basis sustainability rule

Question 2

Customer-Specific Suitability

Answer 2

The registered representative has to have a reasonable basis to believe that the recommendation is suitable for a specific customer. The recommendation would be based on that customers investment profile.(EX: you have an elderly person who, in the past, was relatively sophisticated. now he shows signs of diminished capacity. This would require a different basis for recommendations.

Question 3

Quantitative Suitability

Answer 3

The registered representative has to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taking together. no single test defines excessive activity. However, factors such as the commission generated, the profit-to-cost ratio, and the use of in-and-out trading, in a customer’s account may provide a basis for finding that a member or registered representative has violated the quantitative sustainability obligation .

Question 4

A charge of churning would likely be brought against a registered representative who was found to have disregarded the FINRA rule on ?

Answer 4

quantitative suitability