Which statement about member firms' suitability requirements for institutional investors is correct?

The correct statement highlights that the suitability requirements for institutional investors are less stringent than those for retail accounts. This distinction arises due to the inherent differences in the sophistication and resources available to institutional investors, compared to those typically available to individual retail investors.

Institutional investors, such as pension funds, hedge funds, and insurance companies, are generally considered to possess a higher level of investment knowledge and experience. They often have significant financial resources and access to in-depth research that allows them to make more informed investment decisions. On the other hand, retail investors may require stronger protections due to their varied levels of financial understanding and impact of investment decisions on their personal savings.

Because of these differences, regulators often allow member firms more flexibility in evaluating the suitability of investments for institutional investors. Thus, the regulatory requirements placed on member firms in assessing the suitability of investments for institutional clients are typically less stringent, reflecting the assumption that these investors can navigate risk more effectively on their own.