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The Unsuitability Of The "Suitability Rule": Why Finra's Current Interpretation Of Conduct Rule 2310 Undermines Investor "Holding Claim" Entitlements In Contemporary Markets, Laurence A. Steckman, Robert E. Conner
The Unsuitability Of The "Suitability Rule": Why Finra's Current Interpretation Of Conduct Rule 2310 Undermines Investor "Holding Claim" Entitlements In Contemporary Markets, Laurence A. Steckman, Robert E. Conner
The Journal of Business, Entrepreneurship & the Law
This article's thesis is that FINRA Conduct Rule 2310, FINRA's “suitability rule,” should be interpreted to govern all broker-customer communications that constitute non-trivial investment advice regarding portfolio composition, not just buy, sell or exchange communications, per current interpretation (the “BSE Interpretation”). Because acting on advice to hold a security (a “Holding Claim”) can affect risk just as significantly as a recommendation to buy, sell or exchange one, the BSE Interpretation leaves a large body of investment advice affecting customer portfolio risk unregulated by suitability standards. Such interpretation not only fails to reflect Rule 2310's well recognized customer-protective purposes, but effectively …