The Financial Industry Regulatory Authority (FINRA) and other regulatory organizations have specific rules that govern the suitability of a specific investment for a specific investor and prohibit broker’s from selling unsuitable investments.
Broker-dealers and associated persons have three main suitability obligations. First, the reasonable-basis obligations requires that there be a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. Second, the customer-specific obligation requires that there be a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Finally, quantitative suitability requires that a broker-dealer or associated person who has actual or de facto control over a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable on their own, are not excessive or unsuitable for the customer taken together.
According to FINRA Rule 2111, broker-dealers and associated persons are required to have a “reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer.” This determination should be based on “information obtained through the reasonable diligence” to determine the customer’s investment profile. “A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose.”
If a broker recommends an unsuitable investment to an individual, then that person may be subjected to unnecessary risk and suffer losses.
If you have suffered losses on investments recommended to you by your broker, then Galvin Legal may be able to help you recover your losses in a Financial Industry Regulatory Authority (“FINRA“) arbitration claim. For a Free Consultation with a securities attorney, call Galvin Legal at 1-800-405-5117.
