Best Practices: Completing the NFS Application Suitability Section

The NFS Application requires capturing a wide range of client data points. We recognize that the Suitability Section can be difficult to complete consistently, since its format differs from the ESI Client Profile. To support accuracy and uniformity, this notice provides guidance to help you complete the NFS Application more easily and with greater consistency.

Financial Position

This section gathers the client’s financial background information which broker-dealers are required to collect under FINRA and SEC rules. The data ensures that investment recommendations align with the client’s overall financial profile.

Key fields include:

1. Annual Income (from all sources)
   • Report the client’s yearly income (salary, investments, pensions, rental income, etc.).
   • Use a specific dollar figure, do not enter a range
   • Helps assess ability to meet obligations and take on investment risk.
2. Estimated Net Worth (excluding primary residence)
   • Assets minus liabilities, not counting the value of a primary home.
   • Use a specific dollar figure, do not enter a range
   • Provides a picture of long-term financial strength and risk capacity.
3. Investable/Liquid Assets (including cash & securities)
   • Cash, savings, brokerage accounts, marketable securities.
   • Excludes illiquid holdings (real estate, locked retirement plans).
   • Use a specific dollar figure, do not enter a range
   • Shows how much is readily available for investment or emergencies.
4. Federal Tax Bracket
   • Approximate tax rate for the client.
   • Important for recommending tax-sensitive investments (e.g., municipal bonds).
5. Annual Expenses (recurring)
   • Ongoing living costs (housing, food, insurance, debt payments, etc.).
   • Determines whether income sufficiently covers expenses.
6. Special Expenses (future & non-recurring)
   • Large, known costs (college tuition, weddings, major purchases, elder care).
   • Identifies upcoming liquidity needs.
7. Timeframe (for special expenses)
   • When funds will be needed:
     • Within 2 years → requires highly liquid, low-risk investments.
     • 3–5 years → allows moderate flexibility.
     • 6–10 years → supports long-term growth strategies.

Additional Suitability Info: Decision-Making

FINRA and SEC rules require firms to document how a client makes investment decisions. This helps assess suitability and define the firm’s responsibilities.

• Risk & Responsibility
  • Consult with broker → indicates reliance on professional advice.
  • Own decisions → suggests client accepts responsibility for self-directed trades.
  • Consult with family/friends → shows outside influences that may impact choices.
• Compliance & Documentation
  • Recording this protects both client and firm.
  • In the event of disputes, the application provides evidence of how decisions were made at account opening.

Additional Suitability Info: Assets Held Away

The “Assets Held Away” section is often the most challenging part of the NFS Application. While originally intended to capture holdings outside the account being opened, we use this section more broadly. It should reflect the client’s overall asset allocation at the time of the application, essentially, a snapshot of the portfolio before any transaction.

How to complete:

1. Enter the Total Value of All Assets
   • Include all holdings, both inside and outside the firm.
   • This represents the client’s full financial picture.
2. Allocate by Asset Class (must total 100%)
   • Distribute across categories (Stocks, Bonds, Mutual Funds, Annuities, Life Insurance Cash Value, Alternatives, Short-Term/Cash, Other).
   • Reasonable estimates are fine — exact precision is not required.
3. Use “Other” if Needed
   • Capture holdings that don’t fit listed categories (e.g., cryptocurrency, collectibles, real estate partnerships).
4. Remember: Snapshot in Time
   • Reflects the client’s allocation prior to the transaction.
   • Think of it as the “before picture” of the client’s portfolio.
5. Keep Consistency in Mind
   • Follow the same approach used in the Direct Business Client Profile.
   • Consistency ensures records are aligned and easy to interpret.

Key Takeaway: The Suitability Section of the NFS Application is not just a formality — it is critical for meeting regulatory obligations, documenting client context, and ensuring our recommendations are appropriate. Using these best practices will help you complete this section with accuracy and confidence.

With questions, please contact the Brokerage and Illuminations Suitability Team at 1-800-344-7437, option 2, option 5, option 1.

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