NASD: Comp Not Valid Reason To Convert Rep's Business

“Any recommendation by the firm or its associated persons to sell a product and to replace it with another one may be made only after fully assessing the suitability of the transaction for the customer and determining that the transaction is in the customer’s best interests in view of all considerations,” officials write. “Member firms and their associated persons may not reach any suitability determination or make any recommendation on the basis that the purchase of a security or sale and replacement of a security will yield greater remuneration for them.”

Whether the new firm has a dealer or servicing agreement with the old firm is a valid consideration, but “the suitability analysis must also include other considerations,” officials write.

The new firm should consider whether the customer’s mutual fund or variable product is subject to a contingent deferred sales charge or a surrender period, or has other features that materially affect its value or liquidity, and the firm should also consider any fees and expenses associated with the new product being recommended, officials write.

“For a reasonable period following the association of a new representative,” the new firm should make sure the replacements the new rep is recommending are suitable for the customers involved, officials write.