Suitability is the requirement that an investment recommendation fit the customer — their objectives, finances, risk tolerance, liquidity needs, and experience. Long the governing standard for broker recommendations under FINRA Rule 2111, it survives today as the baseline beneath Reg BI and as the specific investor standards printed in non-traded offerings.
The standard and its layers
Classic suitability has three components: reasonable-basis (understand the product well enough to know it could suit someone), customer-specific (it suits this customer’s profile), and quantitative (recommendation frequency isn’t excessive). Since 2020, retail recommendations by broker-dealers run under Regulation Best Interest — which absorbed and heightened suitability’s logic — leaving Rule 2111 governing non-retail contexts; RIAs meet the same substance through fiduciary care. The alternatives-specific layer advisors work with daily: prospectus suitability standards — the minimum income/net-worth requirements (commonly $70,000/$70,000 or $250,000 net worth in non-traded REIT offerings, with stricter state overlays from blue sky merit review) and concentration limits (typically ~10% of liquid net worth) that selling firms must enforce at the point of sale, documented in the subscription agreement's questionnaires. The working distinction worth keeping crisp: eligibility standards (accreditation, prospectus minimums) answer whether a client may buy; suitability and best-interest analysis answer whether they should — clearing the first never settles the second.
Related terms
Regulation Best Interest · Concentration Limit · Fiduciary Standard · Blue Sky Laws · Accredited Investor
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