FINRA Rule 2111: Analysis Framework to Support Your Suitability Determinations
VelocityIQ provides systematic three-prong analysis tools aligned with FINRA Rule 2111 requirements. These decision-support frameworks help you evaluate strategies thoroughly and document your analysis—while you retain full professional responsibility for all suitability determinations and client recommendations.
IMPORTANT:
VelocityIQ provides analysis tools and evaluation frameworks to support advisor decision-making. The system does NOT make suitability determinations or investment recommendations. Advisors must review system analysis, apply professional judgment, and make their own suitability determinations. Advisors are solely responsible for all determinations and recommendations to clients.
The Advisor's Legal Obligation
The Rule:
FINRA Rule 2111 requires that advisors have a reasonable basis to believe that a recommended transaction or investment strategy is suitable for the customer, based on information obtained through reasonable diligence about the customer's investment profile.
Key Points:
- • The ADVISOR must have reasonable basis
- • The ADVISOR must obtain information through reasonable diligence
- • The ADVISOR must make the suitability determination
- • Burden of proof is on the ADVISOR to demonstrate reasonable basis
Investment Profile - Factors Advisors Must Consider:
- Age
- Other investments and current holdings
- Financial situation and needs
- Tax status
- Investment objectives
- Investment experience
- Time horizon
- Liquidity needs
- Risk tolerance
- Any other relevant information disclosed
Three Evaluation Components:
FINRA guidance explains that advisors should consider three components:
- Reasonable-basis suitability (product-level evaluation)
- Customer-specific suitability (client profile alignment)
- Quantitative suitability (transaction pattern reasonableness)
How VelocityIQ Supports This:
- • We provide analysis tools that help you evaluate each component systematically.
- • We structure investment profile data around FINRA's required factors.
- • We document your analysis process for regulatory review.
You apply professional judgment to the analysis. You make the final suitability determination. You take responsibility for your recommendations.
Systematic Evaluation Tools for Each FINRA Component
VelocityIQ provides analysis tools for each of the three suitability components. You review the system-generated analysis, apply your professional judgment to the client's unique situation, and make your determination.
Framework Component 1: Reasonable-Basis Analysis
The Evaluation Question Advisors Must Answer:
Is this product or strategy appropriate for at least some investors?
What FINRA Requires Advisors Understand:
Product risks, characteristics, complexity, liquidity, costs, leverage, and structure before recommending to any client.
Analysis Tools VelocityIQ Provides:
System analyzes and presents:
- • Complexity classification
- • Liquidity characteristics
- • Leverage usage
- • Risk and volatility profile
- • Fee and expense structure
- • Due diligence requirements
Output format:
- → Product characteristic summary
- → Complexity assessment
- → Risk factor identification
- → Considerations for advisor review
Example Analysis Output:
Strategy: QSBS-eligible business exit with diversification
Reasonable-Basis Analysis Provided:
- → Complexity: Moderate (QSBS rules, standard diversification)
- → Liquidity: Improved post-exit (liquid securities vs. private business)
- → Leverage: None
- → Risk Level: Moderate (diversified portfolio)
- → Fees: Standard advisory fees
- → Considerations: Ensure understanding of QSBS rules, tax implications, diversification benefits
ADVISOR ACTION REQUIRED:
- → Review analysis
- → Confirm due diligence adequate
- → Determine if strategy appropriate for any investors
- → Document your determination
How You Use This:
- Review system analysis of product characteristics
- Confirm due diligence is adequate for your needs
- Consider whether strategy is appropriate for any clients
- Apply your professional judgment
- Document your reasonable-basis determination
Critical Note: System provides analysis. You make determination. You document conclusion.
Framework Component 2: Customer-Specific Analysis
The Evaluation Question Advisors Must Answer:
Is this strategy appropriate for THIS specific client's investment profile?
What FINRA Requires Advisors Consider:
All nine investment profile factors plus any other relevant client information.
Analysis Tools VelocityIQ Provides:
System structures client profile data and provides comparison framework:
Investment Profile Captured:
- • All 9 FINRA-required factors systematically documented
- • Client-specific information organized
Alignment Analysis Provided:
- → Risk tolerance vs. strategy risk assessment
- → Liquidity needs vs. strategy liquidity analysis
- → Experience level vs. strategy complexity comparison
- → Time horizon vs. strategy timeline alignment
- → Concentration implications evaluated
Output format:
- → Profile-to-strategy comparison
- → Alignment factors and concerns identified
- → Considerations for advisor judgment
Example Analysis Output:
Client Profile Summary:
Age: 40 | Risk Tolerance: Moderate-Aggressive (7/10)
Experience: High with private business, moderate with public markets
Time Horizon: 25+ years
Liquidity Needs: $650K annual, $10M trust funding (5 years)
Current: 90% concentration in private business
Strategy: QSBS exit with diversification to 60/30/10 portfolio
Customer-Specific Alignment Analysis:
RISK ALIGNMENT:
- → Current: 90% concentration (very high risk)
- → Proposed: Diversified portfolio (moderate-aggressive risk)
- → Client tolerance: Moderate-aggressive (7/10)
- → Analysis: Strategy reduces overall risk while maintaining appropriate risk level
- → ADVISOR CONSIDERATION: Alignment appears strong, but confirm client comfort with transition from concentrated to diversified
LIQUIDITY ALIGNMENT:
- → Current: Illiquid private business
- → Post-strategy: Liquid portfolio ($70M proceeds)
- → Can fund: Annual needs ($650K), trust ($10M), emergency ($5M)
- → Analysis: Strategy dramatically improves liquidity position
- → ADVISOR CONSIDERATION: Ensure client understands liquidity improvement
EXPERIENCE ALIGNMENT:
- → Client has private equity experience (business owner)
- → Moderate public markets experience
- → Limited alternatives experience (10% allocation proposed)
- → Analysis: Experience generally adequate, alternatives allocation conservative
- → ADVISOR CONSIDERATION: Discuss alternatives education, confirm comfort level
OVERALL ANALYSIS SUMMARY:
Strategy appears well-aligned with client profile. Key considerations:
- • Dramatic risk reduction from concentration
- • Significant liquidity improvement
- • Risk level matches stated tolerance
- • Time horizon supports equity allocation
- • May need education on alternatives component
ADVISOR ACTION REQUIRED:
- → Review this analysis in context of complete client relationship
- → Consider any additional factors unique to this client
- → Discuss considerations with client
- → Apply your professional judgment
- → Make customer-specific suitability determination
- → Document your determination
How You Use This:
- Review system analysis of profile-to-strategy alignment
- Consider additional client factors not captured by system
- Evaluate whether strategy is appropriate for THIS client
- Apply your professional judgment and experience
- Make customer-specific suitability determination
- Document your determination and reasoning
Critical Note: System provides alignment analysis and highlights considerations. You must evaluate all factors, apply judgment, make determination. System analysis supports but does not replace your professional evaluation.
Framework Component 3: Quantitative Analysis
The Evaluation Question Advisors Must Answer:
Is the overall transaction pattern reasonable and appropriate for this client?
What FINRA Requires Advisors Consider:
Whether series of transactions is excessive, considering turnover, costs, and whether pattern serves client interests.
Analysis Tools VelocityIQ Provides:
For active trading strategies:
- • Annual turnover rate calculation
- • Cost-to-equity ratio analysis
- • Transaction pattern assessment
For one-off strategies:
- • Transaction sequence evaluation
- • Cost reasonableness analysis
- • Client benefit assessment
Output format:
- → Quantitative metrics calculated
- → Pattern analysis provided
- → Benchmarks for reference
- → Considerations for advisor review
Example Analysis Output:
Strategy: Business exit with diversification (one-time restructuring)
TRANSACTION SEQUENCE:
- → Exit: Sale of private business ($70M proceeds)
- → Diversification: Initial portfolio construction (60/30/10)
- → Ongoing: Buy-and-hold with minimal trading
METRICS CALCULATED:
- → One-time restructuring cost: ~$700K (advisory fees, transaction costs)
- → Cost as % of proceeds: 1.0%
- → Projected ongoing turnover: <0.3 annually
- → Projected ongoing cost-to-equity: <0.7%
PATTERN ASSESSMENT:
- → Single exit event (not repetitive trading)
- → Followed by strategic allocation
- → Minimal ongoing transaction activity
- → Costs reasonable for value delivered (concentration reduction, diversification)
BENEFIT-TO-CLIENT ANALYSIS:
- → Reduces concentration risk from 90% to diversified
- → Improves liquidity significantly
- → Positions for long-term wealth preservation
- → Transaction pattern serves stated client objectives
ADVISOR CONSIDERATIONS:
- • One-time restructuring appropriate for significant life event
- • Costs proportional to benefits received
- • No indication of excessive trading
- • Pattern aligns with client's long-term objectives
ADVISOR ACTION REQUIRED:
- → Review analysis in context of client objectives
- → Confirm transaction pattern is reasonable for this client
- → Apply your professional judgment
- → Make quantitative suitability determination
- → Document your determination
How You Use This:
- Review system-calculated metrics and pattern analysis
- Consider client-specific objectives and sophistication
- Evaluate whether transaction pattern is reasonable
- Apply professional judgment about appropriateness
- Make quantitative suitability determination
- Document your assessment
Critical Note: System provides quantitative analysis and metrics calculation. You evaluate reasonableness in context of client relationship. You make determination about pattern appropriateness.
Your Process for Making Suitability Determinations
What You're Responsible For:
- Obtaining client information through reasonable diligence
- Reviewing and understanding system analysis
- Applying professional judgment to unique client factors
- Making the suitability determination
- Documenting your determination and reasoning
- Discussing recommendations with client
- Taking responsibility for all recommendations
- Complying with all applicable regulations
- Following firm policies and procedures
- Maintaining appropriate supervision
What the System Provides:
- Structured data collection framework
- Analysis tools for three-prong evaluation
- Documented methodology for audit trail
- Considerations and factors to review
- Supporting documentation for your file
System does NOT:
- Make determinations
- Provide investment advice
- Guarantee compliance
- Eliminate advisor responsibility
Step-by-Step Workflow:
Step 1: System Generates Analysis
- → Investment profile structured around FINRA factors
- → Strategy characteristics analyzed
- → Three-prong evaluation framework applied
- → Analysis output generated for your review
Step 2: You Review the Analysis
- → Read all system-generated analysis
- → Verify accuracy of profile data
- → Understand strategy characteristics presented
- → Note alignment factors and considerations highlighted
Step 3: You Apply Professional Judgment
- → Consider factors unique to this client relationship
- → Evaluate information not captured in system
- → Apply your experience and expertise
- → Consider regulatory guidance and firm policies
- → Think through implications and risks
Step 4: You Make Determination
- → Determine if strategy is suitable for this client
- → Decide if strategy is unsuitable
- → Identify if additional information or analysis needed
- → Consider modifications that might improve suitability
Step 5: You Document Your Determination
- → Document your suitability determination in client file
- → Include key factors that supported your determination
- → Note any considerations or discussions with client
- → Reference system analysis as supporting documentation
- → Take responsibility for your determination
Step 6: You Discuss with Client (if suitable)
- → Present strategy to client with your recommendation
- → Discuss considerations and risks
- → Confirm client understanding and agreement
- → Document client discussion and decision
Audit Trail Supporting Your Determination Process
What Gets Documented:
System maintains record of:
- → Complete investment profile (9 FINRA factors)
- → Strategy characteristics analyzed
- → Three-prong analysis framework applied
- → Alignment factors identified
- → Considerations highlighted
- → Timestamp of analysis generation
What You Must Document:
- → Your review of system analysis
- → Additional factors you considered
- → Your professional judgment applied
- → Your suitability determination
- → Your reasoning for determination
- → Client discussions and decisions
- → Ongoing monitoring and review
How This Supports Regulatory Examinations:
When FINRA asks about your suitability determination, you can show:
- Systematic methodology: "I used three-prong analysis framework
- Complete profile: "All 9 FINRA factors were captured and considered"
- Documented analysis: "Here's the evaluation framework I reviewed"
- Professional judgment: "Here's my determination and reasoning"
- Client discussion: "Here's documentation of client conversation"
This demonstrates reasonable basis for your determination while showing systematic approach to evaluation.
Important Clarification:
System documentation shows you used systematic analysis tools. Your documentation shows you made the determination. Combined: Demonstrates thorough, professional approach to suitability.
System analysis supports but does not replace your documentation of professional judgment and determination.
Understanding VelocityIQ's Role and Your Responsibilities
What VelocityIQ Is:
- Decision-support tool for financial advisors
- Analysis framework aligned with FINRA Rule 2111
- Data structuring and evaluation methodology
- Documentation support for advisor determinations
- Technology platform providing analysis capabilities
What VelocityIQ Is NOT:
- Investment advisor or broker-dealer
- Provider of investment advice or recommendations
- Maker of suitability determinations
- Guarantee of regulatory compliance
- Replacement for professional advisor judgment
- Elimination of advisor liability or responsibility
Advisor Responsibilities:
YOU are responsible for:
- → Obtaining client information through reasonable diligence
- → Reviewing and evaluating all system analysis
- → Applying professional judgment to client situations
- → Making all suitability determinations
- → Determining appropriateness of recommendations
- → Discussing strategies with clients
- → Documenting determinations and client interactions
- → Complying with all applicable securities regulations
- → Following your firm's policies and procedures
- → Maintaining appropriate supervisory oversight
- → All aspects of client relationships and recommendations
What System Analysis Cannot Do:
- → Cannot make suitability determinations on your behalf
- → Cannot provide investment advice or recommendations
- → Cannot guarantee regulatory compliance
- → Cannot eliminate your professional responsibilities
- → Cannot replace your judgment or expertise
- → Cannot absolve you of liability for determinations
- → Cannot ensure client outcomes or satisfaction
Limitations of Analysis:
System analysis is based on:
- → Information you provide (quality depends on input accuracy)
- → Structured rules and frameworks (may not capture all nuances)
- → General evaluation methodology (may miss client-specific factors)
- → Available data at time of analysis (market conditions change)
You must:
- → Verify accuracy of all input data
- → Consider factors not captured by system
- → Apply judgment about unique client circumstances
- → Stay current on regulatory requirements
- → Use analysis as one input to your determination, not sole basis
Use at Your Own Risk:
By using VelocityIQ tools, you acknowledge and agree that:
- You are solely responsible for all suitability determinations and client recommendations
- You will review all system analysis and apply independent professional judgment
- You will not rely solely on system analysis for determinations
- You understand system analysis is decision-support, not advice or determinations
- You will comply with all applicable regulations regardless of system output
- You will maintain appropriate supervision over use of analysis tools
- VelocityIQ is not liable for advisor determinations or client outcomes
- Use of analysis tools does not ensure regulatory compliance
- You will review and understand all limitations and disclaimers
- You accept full responsibility for how you use analysis tools and outputs
IMPORTANT LEGAL NOTICE:
VelocityIQ provides technology-based decision-support tools and analysis frameworks. VelocityIQ does not make suitability determinations, provide investment advice, or act as an investment advisor or broker-dealer.
All suitability determinations, investment recommendations, and client advice must be made by licensed financial professionals who review system analysis, apply independent professional judgment, and take full responsibility for their determinations.
System analysis is provided "as is" without warranties of any kind. VelocityIQ disclaims all liability for advisor determinations, client outcomes, regulatory compliance, or any damages arising from use of analysis tools.
Users are solely responsible for: (1) verifying accuracy of all data and analysis, (2) applying appropriate professional judgment, (3) making all suitability determinations, (4) complying with applicable regulations, and (5) all aspects of client relationships and recommendations.
Use of VelocityIQ tools does not ensure regulatory compliance or eliminate advisor liability. Consult your compliance department and legal counsel regarding proper use of analysis tools in your practice.
Why Analysis Frameworks Support Better Determinations
For Advisors
- Systematic approach: Framework helps evaluate all FINRA factors consistently
- Time efficiency: Analysis tools structure evaluation vs. starting from scratch
- Documentation support: Audit trail helps demonstrate systematic methodology
- Consistency: Same framework applied across all clients and strategies
- Thoroughness: Reduces risk of overlooking important factors
- Regulatory support: Documentation helps in examinations
Note: These benefits support your work while you retain full responsibility for determinations.
For Compliance Officers
- Methodology oversight: Can review analysis framework for appropriateness
- Consistency monitoring: Can verify advisors use systematic approach
- Documentation review: Can assess quality of determination documentation
- Training tool: Framework demonstrates proper three-prong evaluation
- Examination support: Can show supervisory use of systematic tools
Note: Compliance must still supervise advisor determinations and documentation.
For Platforms
- Professional tools: Provide advisors with sophisticated analysis capabilities
- Systematic approach: Support consistent methodology across advisor network
- Documentation support: Help advisors demonstrate reasonable basis
- Regulatory positioning: Show commitment to systematic compliance support
Note: Platform remains responsible for supervision of advisor determinations.
Systematic Analysis Framework to Support Your Professional Judgment
See how VelocityIQ's three-prong analysis framework helps you evaluate strategies against FINRA 2111 requirements with systematic methodology and audit trail documentation—while you maintain full professional responsibility for all suitability determinations.
VelocityIQ provides decision-support tools. Advisors make suitability determinations. Advisors are solely responsible for recommendations.