TAKING THE SIE EXAM? AN IMPORTANT SIE EXAM TOPIC TO STUDY IS SUITABILITY OF RECOMMENDATIONS

One of the most important qualities of a registered securities representative is never to recommend that a customer or client purchase or sell any security unless the recommendation is suitable for the client. Specifically,  FINRA has established a three-fold prong for observing the Suitability rule.

There are three questions that a SIE candidate must ask himself/herself in determining Suitability:

1.     Is the security suitable in itself? In other words, would a reasonable person determine that the security incorporates real and reasonable value?

2.     Is the security recommendation suitable for this particular customer? A security recommendation may be highly reasonable for 90 percent of a rep's customers, but highly unreasonable for the remaining 10 percent.

3.     Finally is the recommendation suitable in terms of quantity? This quantitative evaluation means that a 100 shares may be suitable for this customer Mr. Jones or Ms. Smith in terms of size of the purchase or sale, but clearly unsuitable if the rep recommends an inordinately large number of shares, or if Mr. Jones or Ms. Smith already owns a large position.

FINRA publishes a SIE Content Outline for the Securities Industry Essentials (SIE) Exam and includes Suitability in Section 3.2.5 of the Content Outline.

Bob Eder in his Study for the Securities Industry Essentials (SIE) Exam has a full discussion on FINRA's rule on Suitability. Here is a sample of his treatment:

Suitability                                                                                (3.2.5)

FINRA Rule 2111 has established criteria for determining whether a specific investment is suitable for a specific customer. FINRA's rule divides suitability into three types or categories. One, is the security suitable in itself? Two, is the security suitable specifically for this customer? This would be "customer-specific suitability." Three, based on this customer's holdings, is the purchase of additional shares of the security appropriate? This last type, FINRA calls "quantitative suitability."

Here is the link to FINRA's Content Outline for the SIE Exam. See the references to Suitability in Section 3.2.5. 

Study for the Securities Industry Essentials (SIE) Exam is available from Amazon in both paperback and Kindle e-book versions. Here is the link to Bob Eder's book on Amazon.

For questions about Bob Eder's Study for the Securities Industry Essentials (SIE) Exam, or questions in general about the SIE Exam, or about Suitability, feel free to email Bob Eder at bobeder@bobeder.net.

Bob Eder received his Juris Doctor (J.D.) degree from the University of Utah, Quinney College of Law, in 2001. See Bob Eder's Author Page on Amazon.com.