Suitability: What Is It?

Before selling securities to a consumer, the broker/dealer should determine the suitability of the product for the consumer. What is or is not suitable is at least as unmeasurable or gray as CRA performance or fair lending. Broker/dealers follow guidelines which the bank should periodically review.

First, any product recommendation or selection should be reasonable supported. The sales agent should gather enough information about the consumer and their finances, lifestyle, and financial goals. The sales agent should understand this information about the consumer before making a recommendation.Second, the fact that this information has been gathered should be documented. This documentation should be part of the file that may be reviewed by the independent auditor or by the examiner.

The real issue of suitability is that it is suitable for the consumer at the time the product recommendation is made. Whether the product performs as expected is not used to evaluate the recommendation.

Copyright © 1997 Compliance Action. Originally appeared in Compliance Action, Vol. 2, No. 16 & 17, 12/97