Suitability Obligations
Chapters in this video
- 0:00 The three suitability obligations and meet the cast
- 1:30 Reasonable-basis: the product due diligence test
- 3:19 Customer-specific suitability and the profile match
- 4:17 The unsolicited trade loophole
- 4:47 Quantitative suitability and the zero-control rule
- 5:54 Churning vs. excessive trading and scienter
- 6:37 Rapid-fire exam recap
What this video covers
- Reasonable-basis suitability as a product test: whether the representative understands the security and whether it is suitable for at least some investors
- Why a customer request does not excuse the representative from product due diligence
- Customer-specific suitability and the nine investment profile factors (age, other investments, financial situation, tax status, objectives, experience, time horizon, liquidity needs, risk tolerance)
- Why each of the three obligations is independent: a recommendation can pass one and fail another
- Quantitative suitability and the markers regulators use: turnover rate, cost-equity ratio, and in-and-out trading
- The June 2020 change that removed the control requirement for quantitative suitability violations
- Churning vs. excessive trading: why churning is a fraud claim that requires scienter (intent to defraud) and excessive trading does not
- The unsolicited trade loophole: no recommendation means no suitability analysis, provided the firm documents it
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