Customer Investment Profile

Before making a recommendation to a retail customer, FINRA Rule 2111 requires a representative to use reasonable diligence to obtain the customer's investment profile. Which item is NOT one of the profile elements the rule enumerates?

1. A.The customer's credit score.Correct. Creditworthiness is not among the enumerated investment profile elements.
2. B.The customer's tax status.Tax status is expressly listed in the rule.
3. C.The customer's investment time horizon.Time horizon is expressly listed in the rule.
4. D.The customer's liquidity needs and risk tolerance.Both liquidity needs and risk tolerance are expressly listed in the rule.

Why: Rule 2111 lists the customer's age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer discloses. Creditworthiness is not part of the profile; a credit score speaks to a customer's ability to repay borrowings, not to the suitability of a securities recommendation.

A prospective customer completes a new account application but declines to state her annual income or net worth. Everything else is provided. What may the firm do?

1. A.Refuse to open the account, because income and net worth are mandatory to open any accountA customer may decline. Firms record the refusal rather than turning the customer away.
2. B.Open the account and document the refusal, but recognize that missing financial information limits what may be recommendedCorrect. Firms must ask and record the attempt; the gap then constrains customer-specific recommendations.
3. C.Open the account and make any recommendation, because the customer waived the requirement by decliningA customer cannot waive the firm's suitability and best-interest obligations by declining to answer.
4. D.Obtain the missing figures from a consumer credit bureau insteadPulling third-party financial data in place of asking the customer is not the prescribed process here.

Why: A firm must attempt to obtain the customer's financial profile, but a customer can decline to supply some of it. The firm may still open the account, documenting that the information was requested and refused. What the refusal does limit is recommendations: without the financial picture, the representative lacks a reasonable basis for many customer-specific recommendations. The clue is that the question separates opening an account from recommending securities.