Unsuitable Investment Advice
Brokerage firms, financial institutions and investment professionals are required to provide suitable investment recommendations and strategies to a customer that are consistent with the customer’s investment objectives, risk tolerance and financial needs. This requirement is based on the “know your customer” rule, which requires brokerage firms, financial institutions and investment professionals to be aware of all factors that affect a customer’s financial situation.
The suitability rule applies to an investment professional’s investment advice regardless of the type of recommendation, e.g., a buy, sell or hold. The rule is not dependent on a particular transaction or the compensation generated from the transaction. The investment professional must understand the investment or strategy being recommended and the customer’s ability to understand and assume the risks associated with the investment or strategy. The investment professional is required to exercise reasonable diligence in gathering all information necessary to make the recommendation or strategy. Such information includes the customer’s age, investment portfolio, employment status, tax status, investment objectives, financial situation and needs, investment experience, investment time horizon, liquidity needs, and risk tolerance. The investment professional should consider any other information disclosed by the customer in connection with the recommendation or strategy to determine the customer’s ability to understand and assume the risks associated with the investment or strategy.
Investment losses resulting from unsuitable investment advice can serve as the basis for a damages claim in a FINRA arbitration. The failure to supervise an investment professional’s understanding of a particular investment or strategy or the customer’s needs can serve as the basis for a negligence claim in a FINRA arbitration.
The Law Office of Jeffrey M. Haber can help you determine whether an investment loss is the result of unsuitable investment advice. Customers who suffer losses as a result of unsuitable investment advice may be able recover their losses in a FINRA arbitration. If you believe your broker, adviser, or investment professional has made a recommendation that is inconsistent with your investment objectives, risk tolerance and needs, contact Jeffrey M. Haber to discuss your rights.