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NASD Issues Guidance Regarding Online Investment Recommendations
The National Association of Securities Dealers (NASD) has issued a notice to members attempting to clarify when an online brokerage firm's communications amount to a recommendation to purchase or sell a security.
The distinction between a recommended security and one that is "unsolicited" (that is, the customer's idea) is an important one. That is because brokerage firms must have a reasonable basis to believe that the recommendation is consistent with the customer's investment objectives and financial position.
The NASD emphasizes that online brokerage firms are not exempt from the industry's suitability rules. Broadly, whether or not a given communication qualifies as a recommendation depends upon two factors: does the communication amount to a "call to action"; and the degree to which the message is individually targeted.
Source: Chicago Tribune, March 25, 2001
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