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Advisor Knowledge Center

Suitability Part 2: Determining Suitability

The first step in determining suitability is knowing and understanding your client. This is an ongoing process. Only after evaluating a customer’s investment needs can you begin to recommend the types of financial products and option strategies that are consistent with those needs. If the registered representative does not act in the best interests of their customer’s needs, then SROs can take disciplinary measures and impose penalties.

A determination of suitability for options transactions is based on information provided by the client. The information contains statements about investment objectives, financial condition, and other pertinent data. The primary method for obtaining this information is the new account form, which is also used to open an account. An options information form and agreement is also required. The registered representative for the client must complete this form, and the client must sign it.

While a new account form and an options information form and agreement are required and contain important information about the client, understanding a client’s suitability is an ongoing process. Therefore, it is sometimes necessary to ask additional questions and to provide more documentation to better understand the full scope of a client’s goals and objectives. Knowing a client’s goals and objectives. Knowing a client’s goals is important when recommending specific option strategies.

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