FINRA’s suitability rule states that firms and their associated persons “must have a reasonable basis to believe” that a transaction or investment strategy involving a recommended security is suitable for the customer. This reasonable belief must be based on a detailed customer profile that includes information on investor age, other investments held by the investor, the investor’s investment objectives, liquidity needs and risk tolerance. A detailed customer profile should also include the investor’s financial status, tax status, and investment experience.
An example of an investment strategy that may be considered unsuitable is a portfolio asset mix that doesn’t match the customer’s investment objectives, or the investments purchased are too aggressive for what the client needs or wants. In some cases, stockbrokers deliberately give unsuitable advice for their own profit and gain, or in other cases, bad investment advice happens out of negligence when a stockbroker fails to consider the needs of his or her client.
Unsuitable investments subject to this claim include (but are not limited to) hedge funds, fixed annuities or variable annuities, fee-based managed accounts, mutual funds, closed-end funds, stocks, exchange-traded funds (ETF’s), municipal bonds and corporate bonds. In effect, any investment may be unsuitable if not consistent with a customer’s investment objectives and risk tolerance.
Our office can assist you if you feel you have been the victim of unsuitable investments. Please call our office at 800-718-1422 for a consultation.