A registered representative is assisting a client with opening a new investment account. The client provides limited information, stating they are uncomfortable sharing detailed financial data, but insists on investing in a variable annuity. The representative explains the product's complexities and risks, but the client remains reluctant to provide full suitability information. What is the representative's most appropriate action?
- AOpen a brokerage account for more liquid investments, avoiding the variable annuity entirely.
- BRefuse to open the account or process the variable annuity purchase due to insufficient suitability information.
- CSuggest the client consult with a tax advisor or attorney before proceeding with the variable annuity.
- DOpen the account and execute the variable annuity purchase, documenting the client's refusal to provide full information.
Show answer & explanationAnswer & explanation
Correct answer: B. Refuse to open the account or process the variable annuity purchase due to insufficient suitability information.
FINRA Rule 2111 (Suitability) requires a registered representative to have a reasonable basis to believe a recommendation is suitable for the customer. If a client refuses to provide sufficient information to make a suitability determination, the representative cannot fulfill this obligation. Therefore, the representative must refuse to open the account or process the transaction, as they cannot recommend or facilitate an investment without understanding its suitability.
Why the other options are wrong
- A. Opening an account for other investments doesn't address the client's desire for the variable annuity, and if the client's overall profile is unknown, even 'liquid' investments might be unsuitable.
- C. While good advice, suggesting a consultation does not resolve the representative's immediate inability to determine suitability for the variable annuity or open the account.
- D. Executing a transaction without sufficient suitability information is a violation, even if documented.
Insufficient Suitability Information
If a client refuses to provide necessary information to assess suitability, a registered representative cannot make a recommendation or execute a transaction, as it would violate their suitability obligation.
- FINRA Rule 2111 requires a 'reasonable basis' for suitability.
- Insufficient information prevents this 'reasonable basis'.
- Representative must decline the transaction or account opening.
- Firms must have policies for handling such situations.
Memory trick: No profile, no go, that's the suitability rule's show.