Regulation — RIA-specific
FINRA Rule 2111 — suitability
Rule 2111 governs suitability for FINRA-member firms and their associated persons, which captures every dual-registered adviser and every BD-affiliated planning practice. The rule has three suitability standards, and the sample's R3 pattern is squarely inside all three.
What the regulation actually says
"A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer's investment profile."
FINRA Rule 2111(a) -- general suitability obligation
"The three main suitability obligations are: (1) Reasonable-basis suitability … (2) Customer-specific suitability … (3) Quantitative suitability …"
FINRA Rule 2111 Supplementary Material .05 -- Components of Suitability Obligations
What this means in plain English
Three tests, each of which is now an AI-monitoring test when an algorithm is doing the recommending:
- Reasonable-basis suitability. The firm must understand the recommended strategy well enough to believe it is suitable for at least some retail investors. If the AI recommends high-fee active alpha, the firm must be able to justify that strategy on the merits — not defer to the vendor's marketing.
- Customer-specific suitability. The recommendation must be suitable for the specific customer given their profile. R3 conservative near-retirees routinely being served active-alpha recommendations fails this test on its face.
- Quantitative suitability. Even a series of individually suitable recommendations can be unsuitable in aggregate (excessive activity, cost-relative-to-benefit). AI-driven recommendation flows produce exactly the kind of pattern this test is calibrated to catch.
What triggers the exposure in the sample
R3 clients were routed to the active-alpha / high-fee lane at 3x baseline frequency for 45+ days without a single alarm. Under Rule 2111, that pattern is a quantitative-suitability breach and, on a per-account basis, a customer-specific suitability breach for every R3 client so routed. FINRA enforcement staff have consistently treated "the algorithm made the recommendation" as a supervision failure, not a defense.
What the $499 Snapshot shows against this rule
- Per-client-group recommendation-flow measurement — the quantitative-suitability audit trail
- Dated event log of the days the differential grew — the supervision-review record
- Sample decision reproduction for 5 recommendations from a target day — the customer-specific suitability defensibility test
- 3 fix-first items including freeze/hold criteria — the response protocol FINRA staff expect the firm to have on file
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