When must a broker-dealer assess the suitability of a municipal securities recommendation?

• A. Only upon customer request for a suitability review
• B. Whenever a firm makes a recommendation or provides investment guidance that takes into account a customer's financial situation, goals, and risk tolerance
• C. Only for institutional accounts
• D. Never; suitability is optional

Answer: (B)

The main concept is that a broker-dealer must evaluate suitability whenever it makes a municipal securities recommendation or provides investment guidance that takes into account a customer’s financial situation, goals, and risk tolerance. This requirement ensures the suggested security or strategy fits the customer’s ability to take on risk and their investing objectives. It applies whenever the firm is offering a recommendation or guidance that considers those factors, not just on request or for certain clients. It’s not optional and it isn’t limited to institutional accounts. For example, if a firm proposes a municipal bond with a longer maturity to a client who needs liquidity or has a low risk tolerance, the firm must assess whether that recommendation is suitable for that client before proceeding.