Suitability Rules

Guidelines that those selling sophisticated and potentially risky financial products, such as limited partnerships or commodities futures contracts, must follow to ensure that investors have the financial means to assume the risks involved. Such rules are enforced through self-regulation administered by such organizations as the National Association of Securities Dealers, the Securities and Commodities Exchanges, and other groups operating in the securities industry. Individual brokerage firms selling the products have their own guidelines and policies. They typically require the investor to have a certain level of Net Worth and Liquid Assets, so that he or she will not be irreparably harmed if the investment sours. A brokerage firm may be sued if it has allowed an unsuitable investor to buy an investment that goes sour. See also Know Your Customer.