If your broker recommends an investment which is not suitable for you, and you have lost money, you may have an arbitration claim. Your broker must have a basis for believing that the recommendation is suitable for you. In making this assessment, your broker must consider your investment objectives, income, net worth, risk tolerance, and other security investments. The FINRA rule states that:
“that brokerages “must have a reasonable basis to believe” that a transaction or investment strategy involving securities that they recommend is suitable for the customer. This belief must be founded on information obtained from the customer. Generally, the brokerage must take all of the following into consideration
- financial situation and needs;
- Questions about annual income and liquid net worth;
- tax status;
- investment objectives stated by the investor. These might include, income, retirement, buying a home, preserving wealth or other stated objective;
- time horizon for any investment;
- Cash needs; and
- risk tolerance, which is a customer’s willingness to risk oscillation of the customer’s principal.”
The rule obligates the broker to ask for personal information from customers. A broker may limit the range of recommendations it makes if the customer does not provide the information.
There are three overall types of “un-suitability” claims:
- Customer Specific: This means that a broker must have basis to believe that his or her recommendations are suitable based on the customer's "investment profile." The rule sets forth the FINRA criteria stated above which the broker must gather and understand about the customer. The FINRA list of factors will be the customer’s profile for determining suitability.
- Reasonable Basis: This means that a broker must perform diligence to understand the stocks or bonds which he or she recommends. FINRA's releases state that a broker's lack of understanding about a securities product or strategy may violate the suitability criteria, even when the recommendation is otherwise appropriate.
- Quantitative / No excessive trading: This means that a broker who controls a customer's account (such as a discretionary trading account) believes that a securities purchase, or several securities’ purchases, is not excessive in light of concentration.
If you have been damaged as a result of an unsuitable investment recommendation, Anthony M. Abraham, Esq., PC may be able to help you recover your losses. We have helped many investors recover losses in suitability cases. If you wish to discuss your claim with an experienced attorneys, Call Anthony M. Abraham, Esq. at (877) 430-4877 or email Anthony@AbrahamAttorneys.com