A new FINRA rule on suitability of recommendations by brokerages and brokers to customers—and to prospective customers—is set to take effect on July 9, and with it come a number of issues of which firms and advisors alike will want to be aware.
Brian Rubin
(left), partner at the law firm Sutherland, said in an interview
that one issue is that of the “potential” investor. “In the past
when we've dealt with suitability,” said Rubin, “it has always been
addressing actual customers or clients.” This time, however,
guidance that he said many characterize as “bizarre” was issued in
May that “talks about potential investors, even if that person
doesn't have an account at the firm.”
Firms that are already concerned about the recommendations made to clients based on their existing portfolios now have this new wrinkle: the prospective customer. While it's usual for a firm to try to win customers by looking at existing holdings and suggesting possible additional investments and strategies, now that will have to be done in a way more like the way existing customers are treated—which will likely mean considerably more attention to how prospects are approached.
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