2012 FIRM ELEMENT CONTINUING EDUCATION

Suitability & Documentation 2012 FIRM ELEMENT CONTINUING EDUCATION TRAINING

What is Suitability? Definition of SUITABLE “The quality of having the properties that are right for a specific purpose.” Advantageous Appropriate Fit Right

Suitable Recommendation New Suitability Rule effective July 9, 2012 –Use reasonable diligence to know your customer by obtaining and analyzing their needs –Must have a reasonable basis for recommendations –Suitability must be appropriate regardless if a transaction takes place –Must document the specific reason(s) the recommendation is suitable for the customer

Product Knowledge You must understand the products available to determine which is the most suitable for the customer –Training required for Variable Annuities –Review product materials, prospectuses –Talk with the product sales reps One product is NOT suitable for all customers

Variable Annuities FINRA Rule 2330 requires the customer to be informed of material features and to ensure the customer would benefit from those features. –Sub-accounts must meet suitability needs, investment objective and risk tolerance –Riders must be disclosed and suitable to the customer’s needs –Document the recommendation, the reason for the recommendation and all appropriate pieces of information for the recommendation

Example

Mutual Funds Share Class Suitability –A Share Breakpoints Letter of Intent / Rights of Accumulation Linking of Accounts Near Breakpoints 90 Day Reinstatement –B Share policy $100,000 purchase MUST be pre-approved by Compliance B Share worksheet required Multiple Fund Family Purchases –If more than 3 fund families utilized with an individual customer documentation is required

Example

Principal Review Transactions must be reviewed and approved by your OSJ Surveillance Department reviews OSJ approvals based on transaction and suitability risk –Ensure all documents are completed accurately –Ensure suitability is well documented If missing information or documents Surveillance will request more information from you Failure to respond after multiple attempts Surveillance may hold commissions

DOCUMENT…..DOCUMENT Document your meetings and conversations with your customers Document your research to ensure you are meeting the customers needs Document your recommendations and the rationale for why you selected those products Lack of Documentation = Trouble

Thank you for doing good clean business that is well documented. ~ ProEquities Compliance