Suitability means that the investment is in line with your investment objectives and financial situation. Your financial professional should not recommend an investment that exposes you to risk beyond what you can afford to lose.
The appropriateness of a particular security as an investment for a particular investor, taking into account the specific features of the security and the investor's financial capabilities and sophistication, tax status, investment objectives and other relevant considerations. A security that seems appropriate for the investor in light of these factors is said to be “suitable,” whereas one that does not seem appropriate may be “unsuitable.” Broker-dealers are required under MSRB rules to make suitability determinations before recommending particular investments or investment strategies to customers. See: RECOMMENDATION.
Before a broker can recommend an investment to a customer, the broker must determine whether that investment is suitable. In making that determination the broker must ascertain and consider the customer's objectives, income, financial condition and age.
A test for whether someone really should be investing in a particular security. Checking suitability goes along with the know-your-customer rule. Several blue sky laws require that certain investments be offered only to persons meeting a set of suitability standards, usually related to wealth and income. Determining suitability is part of what it means to qualify a prospect.