The suitability standard states that a broker-dealer is obliged to, in the very least, make investment recommendations that are suitable for their clients.
The SEC defines a broker as someone who acts as an agent for someone else, and a dealer as someone who acts as a principal for their own account.
The suitability standard only details that the broker-dealer has to reasonably believe that any recommendations made are suitable for clients (in terms of the client’s financial needs, objectives and unique circumstances) instead of having to place his/her interests below that of the client. An example would be a broker recommending a proprietary bond fund for a client looking for a fixed income solution.
The bond fund is certainly suitable, so the broker is not breaking any rules, but he/she is only recommending that particular one because they earn a commission from its sale. This can incentivize brokers to sell their own products ahead of competing products that may be at a lower cost.
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