This Investment Dealers Association has issued a notice that attempts to clarify what constitutes a “recommendation”.

The notice comes in light of new rules that require firms to check suitability for clients following their advice, but waives suitability requirements for client trades that don’t involve recommendations.

Like much of securities regulation, the notice doesn’t define everything that constitutes a recommendation, instead it provides examples of the sort of conduct that may constitute recommending a stock.

The IDA notes that the notice is not intended to define all situations that fall under the definition of “recommendation”, and that whether a particular transaction is in fact “recommended” depends on an analysis of all the relevant facts and circumstances of the particular case.

The notice states that “The IDA does not wish to restrict the amount or type of informative documentation sent to customers by a member as this information provides a useful service to customers and assists them in reaching investment decisions.”

“However,” it notes, “the IDA feels it is beneficial to provide some guidance on what may or may not constitute a recommendation. Members must be cognizant that whether a suitability review is triggered is dependant on the particulars of each individual situation.”

The notice says that whether a recommendation has been made does not depend on the method of communication, but the substance of the communication. It adds that simply providing investment information, highlighting the availability of general categories of investment information, general advertisements, the wide distribution of research on a Web site, hyperlinks and portals to other investment-related Web pages would not be considered to be providing recommendations.

However, providing information that is individually tailored to a specific customer, “data mining” customers’ investment preferences and targeting investment-related information, promoting a specific security or a specific trading strategy may be considered to be recommending stocks.

The IDA notes that firms will be considered to provide recommendations where they hold themselves out as taking into account the customer’s objectives and financial situation with respect to any transaction.

Simply signing a waiver stating that the information provided by the firm does not constitute a recommendation is not a determining factor.