This blog post continues our expert analysis of broker-dealer specialists and specialist suitability obligations when interacting with clients and representatives.
Much of this series of blog posts has revolved around a centeral delimma:
What happens when the representative, who knows the client, and the specialist, who knows the product or strategy, come together to make a recommendation to the client. The representative and specialist can both be assumed to know (respectively) the client and the product, but what if neither knows both? In such an instance, can a suitable recommendation be made?
The short answer is no. But where does the ultimate responsibility fall?
If a specialist is at any point involved in a recommendation to a client, then the specialist must know enough about the client to make a suitability determination. Commensurately, the representative must also know enough about the product to make a suitability determination. If either fails in this regard, the recommendation made cannot be said to be suitable.
Irrespective of specialist involvement, under FINRA Rule 2111 (and its predecessor, Rule 2310) the ultimate responsibility for a suitable recommendation lies with the representative. The representative knows the client better than anyone at her firm and is the one inviting the specialist in to help with the sale. However, it bears repeating that the specialist is subject to the suitability rules if they partake in making the recommendation to the client.
Specialist suitability expert John Duval, Sr. and CEO Jack Duval have written a white paper on specialist suitability obligations. It can be accessed here.