FINRA, recently, issued Regulatory Notice 12-55, regarding suitability.
In that notice, FINRA said that the Rule applies to customers, who open an account to buy a product where the broker dealer receives compensation. The regulatory notice also said that FINRA’s suitability rule does not apply to recommendations of non-security products that may be part of an individual broker’s outside business activity. See FINRA Regulatory Notice 12-55, and http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p197435.pdf
FINRA has also offered additional guidance on the suitability rule it adopted last July, providing information on the scope of the terms "customer" and "investment strategy." FINRA defines "customer" for purposes of the suitability rule as a person (not a broker-dealer) who opens a brokerage account or purchases a security where the BD receives compensation. The suitability rule does not apply to a "potential investor" unless such person becomes a customer. The term "investment strategy" triggers the suitability rule when the BD includes recommendations to invest in specific types of securities. A firm could make general recommendations to invest in equities or bonds without a suitability analysis. FINRA also indicated that a recommendation to hold specific securities requires a suitability determination, but a BD does not have an ongoing duty to monitor recommendations. FINRA has created a suitability web page for all FAQs.
Nonetheless, firms must ensure that they have the suitability analyses that assist them in understanding the investor and the investor’s investment strategy for these non-security issues.
As such, firms should feel some ease at this clarification of FINRA’s suitability rule, allowing them to move forward expeditiously. However, it should not be taken as a “get out of jail free card.” FINRA will still ensure that BDs make suitability assessments for their customers or know your customers when necessary.