What Does It Mean?
Unsuitability essentially means that an investment does not meet the investment objectives, risk tolerance or financial wherewithal of the investor. Each investor’s wants and objectives are different, and as a result there is not set objective standard for what makes an investment suitable or unsuitable. Generally speaking, a stockbroker has a duty to know their investors and take steps to ensure that the investments they choose for those investors are suitable for those client’s objectives. For example, an elderly woman who lives alone on limited income would not want to invest in high risk and speculative trades like penny stocks or options. This type of investment would be unsuitable for her.
What is the Law?
A stockbroker's first duty is to gather enough information from their customers to ensure the recommendations they make to those customers are suitable for the customer’s financial goals and circumstances. In order to ensure this rule is properly implemented, the Financial Industry Regulatory Authority (FINRA) has established Rule 2111 which requires brokerage firms and their brokers to seek information regarding the investors’ age, other investments, financial situation, investment experience, investment objectives, tax status, liquidity needs and last most certainly not least, risk tolerance.
This duty does not end at the close of the initial meeting. A stockbroker’s duty to know his customer continues throughout the duration of the professional relationship. In fact, brokers have a duty to continuously stay informed of this information, in case something were to change on the customer’s end. For example, if a young investor comes into a large sum of money by way of will or devise, their risk tolerance might now be a bit higher than it was before. It is the broker’s duty to seek out that information and make changes to his investment strategy accordingly.
Do I Have a Case?
If you or someone you know has invested money through a broker or broker-dealer firm, and you feel that the investments chosen were inappropriate or unsuitable for your investment objectives, please contact the securities fraud attorneys, Fitapelli Kurta. Our firm prosecutes cases on behalf of investors nationwide on a contingency fee basis. Time is of the essence in these cases, so do not wait. Call now for your free consultation.