Putting It Together: Which Rule Applies?

The preceding sections introduced the FINRA suitability rule, Reg BI, Form CRS, the investment-analysis-tool rule, and the MSRB municipal-suitability rule as separate rules. On the Series 6 exam, the real work is matching the fact pattern to the governing standard. This section is the decision map.

Is there a recommendation triggering Reg BI or the suitability rule?

Before any suitability standard attaches, ask: was a recommendation made?

• No recommendation (customer-directed, unsolicited trade only): no suitability obligation under the suitability rule or Reg BI. The know-your-customer (KYC) rule still applies.
• Yes, a recommendation (buy, sell, hold, or strategy): the suitability rule or Reg BI applies, depending on who the customer is.

Exam Tip: Gotchas

• The trigger for Reg BI and the suitability rule is a RECOMMENDATION, not just account opening or a customer conversation.
• A customer who walks in, asks for a specific fund by name, and places an order with no advice has not triggered Reg BI or the suitability rule, but the KYC rule still applies. A later hold recommendation would restart the analysis under the suitability rule's hold-recommendation supplementary material.

Who is the customer for suitability purposes?

Who Qualifies as a Retail Customer?

• A natural person (or a non-professional legal representative of one)
• Uses the recommendation primarily for personal, family, or household purposes

-> Reg BI applies. Reg BI absorbs and exceeds the suitability rule. Form CRS must be delivered per the CRS triggers.

Who Qualifies as an Institutional Customer Meeting the Exemption?

• Meets the institutional-customer definition (listed entity OR $50M+ in assets)
• Firm has a reasonable basis to believe the customer evaluates risk independently
• Customer affirmatively indicates independent judgment

-> The FINRA suitability rule applies, with customer-specific waived. Reasonable-basis always applies.

Who Is a Non-Retail Customer Not Meeting the Exemption?

• Entity or account that is not a Reg BI retail customer AND does not qualify for the institutional exemption

-> The FINRA suitability rule applies in full (reasonable-basis + customer-specific + quantitative).

Which suitability rule applies to each recommendation scenario?

Think of it this way: Each rule answers a different question, so ask each question separately. A retail customer buying a 529 plan with the help of a Monte Carlo tool is governed by Reg BI (conduct), Form CRS (disclosure), and the investment-analysis-tool rule (tool disclosures). The MSRB municipal-suitability rule is not a fourth layer here: it does not apply to a recommendation subject to Reg BI. It governs the same 529 recommendation only when the customer is not a retail customer.

Which rules apply to a retail customer 529 plan recommendation?

Fact pattern: a registered rep recommends a 529 college savings plan share class to an individual customer funding a grandchild's education.

• Recommendation made? Yes.
• Retail customer? Yes, a natural person using the account for a family member's education (household/family purposes).
• Rules that attach:
  • Reg BI: Disclosure, Care, Conflict of Interest, Compliance Obligations
  • Form CRS: deliver at or before the recommendation (new retail investor or existing retail customer trigger, depending on the prior relationship)
  • The MSRB municipal-suitability rule: does not apply, because this recommendation is subject to Reg BI
  • The FINRA suitability rule: absorbed by Reg BI Care Obligation
  • The KYC rule: ongoing, always

Note the pattern: retail + muni recommendation activates Reg BI + CRS + the MSRB municipal-suitability rule in one stack. Compliance with Reg BI is the spine.

Which rules apply to a non-qualifying trust recommendation?

Fact pattern: a small institutional trust with $3 million in assets (not at the $50M threshold) is recommended a mutual fund.

• Recommendation made? Yes.
• Retail customer under Reg BI? The trust is not a natural person, so no.
• Institutional exemption? Not met: the trust has only $3M in assets, well under the $50M threshold.
• Rules that attach:
  • The FINRA suitability rule: full three-layer suitability (reasonable-basis, customer-specific, quantitative)
  • The KYC rule: ongoing, always
• Reg BI and Form CRS do NOT apply because the customer is not retail
• The MSRB municipal-suitability rule does NOT apply because the recommendation is for a mutual fund, not a municipal security

Exam Tip: Gotchas

• $50M threshold matters for the institutional exemption. A $3M trust does not qualify, so customer-specific suitability is NOT waived. The rep must still perform the full three-layer suitability analysis, including customer-specific review of the trust's profile.

Which rules apply to a hold recommendation on an unsolicited purchase?

Fact pattern: the customer bought a fund two years ago with no rep input. Today the customer asks "Should I stay in?" and the rep says "Yes."

• Recommendation made? Yes: the rep's "Yes, stay in" is a hold recommendation under the suitability rule's hold-recommendation supplementary material.
• Retail customer? Assume yes, a natural person.
• Rules that attach:
  • Reg BI Care Obligation, evaluated under the customer's current profile, not the profile at the time of the original purchase
  • The FINRA suitability rule: absorbed by Reg BI for retail; three-layer analysis applied to the hold decision
  • The KYC rule: ongoing

The trap: the rep did not originate the position, but the rep did recommend holding it. The original unsolicited purchase does not inoculate the later hold advice.

Exam Tip: Gotchas

• The hold recommendation starts a fresh Reg BI or suitability analysis. The rep who says "yes, stay in" two years after an unsolicited purchase is now the source of a recommendation. The customer's current profile controls, and failure to verify the current profile is the recurring enforcement theme in hold cases.

What are the key decision-map takeaways for suitability rules?

Exam Tip: Gotchas

• Start by asking whether a recommendation was made. No recommendation -> no suitability duty (but the KYC rule still applies).
• Retail customer -> Reg BI; institutional -> the FINRA suitability rule (with possible institutional-exemption waiver).
• Muni products (529, LGIP, ABLE) activate the MSRB municipal-suitability rule only when Reg BI does not; the MSRB rule does not apply to a recommendation subject to Reg BI.
• Investment analysis tools attach the investment-analysis-tool rule separately from whichever suitability rule governs the downstream recommendation.
• Hold recommendations count, and the rep evaluates them under the current profile.
• Form CRS delivery sits alongside Reg BI and triggers on rollovers and new-service recommendations even without a new account.

What Should You Check on Exam Day?

• Can you state the two starting questions for suitability: was there a recommendation, and who is the customer?
• Do you know that a customer-directed, unsolicited trade triggers no suitability duty, but the KYC rule still applies?
• Can you explain why a $3 million trust does not meet the institutional-customer exemption's $50 million threshold, so full suitability applies?
• Do you know that a retail customer's 529 plan recommendation is governed by Reg BI, not the MSRB municipal-suitability rule?
• Can you state why a hold recommendation on an old unsolicited purchase restarts the suitability analysis under the customer's current profile?