Customer Specific Suitability

Unsuitable Recommendations

If you were sold an investment that was not suitable for, you may be entitled to an investment recovery.

A Broker can Only Recommend an Investment That is Suitable for a Customer

This requires that the representatives "know their customer", their goals, their investment objective, and willingness to take risks. However, unsuitable recommendations of securities are among the most common violations in the brokerage industry. An unsuitable recommendation of securities constitutes a dishonest, unethical and fraudulent business practice. If such a recommendation results in financial loss, the customer has a right to recover that loss.

The law imposes a duty upon securities brokers only to recommend securities that the broker reasonably believes are suitable for the customer. The broker's belief must be based upon a reasonable inquiry concerning the customer's investment objectives, financial situation and needs, tax status, other security holdings, and any other relevant information known by the broker.

One of the most common examples of a suitability violation occurs when a broker recommends speculative securities to a customer with investment goals and objectives that call for conservative investments. An example of such a conservative investor might be a retired person who requires income from investments for living expenses and has no ability to recover from any substantial trading losses.

In a general sense, the three benchmarks for determining the suitability of an investment are the clients’ investment objective(s), time horizon, and risk tolerance. Typically a broker will make these selections in a "check the box" format on the brokerage firms' account opening forms, supposedly based on information from the customer. A broker has a duty to gather essential information in order to understand the risk tolerance of an investor, the tax considerations for the client, the client’s prior experiences and appetite for risk, and the level of return desired. It is the duty of a broker to make recommendations that are appropriate and suitable given his client’s circumstances. If a broker breaches those duties and makes unsuitable recommendations for a client, the broker may be liable to that client.

A Broker’s ‘Reasonable Basis’ for the Recommended Investment

A broker must also have a “reasonable basis for the recommendation.” The broker’s basis for the recommendation can be the firm’s research, in which case the firm must have a reasonable basis for its own recommendation. A broker cannot have a reasonable basis for recommending an investment or investment strategy without knowing the risk of the particular investment or investment strategy being recommended, and explaining that risk to the customer. A broker cannot know the risk of a particular investment or investment strategy, and properly explain it to the customer, without measuring the risk.

FINRA Rule 2111 provides that all brokers and financial advisors must have a reasonable basis for recommending a series of transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the client when taken together in light of the client’s objectives. Thus, while a small investment in a particular product may be suitable for the investor, a large portfolio concentration in the same or similar products may be unsuitable for the same investor. In addition, the pattern and type of securities activity in the account can also be unsuitable for the investor. Factors such as turnover rate, cost-equity ratio, and use of in-and-out trading tactics indicate excessive activity that violates quantitative suitability standards.

To help us evaluate your chances for a successful recovery for “unsuitability” we offer a free and confidential claim evaluation.

If you didn’t have the financial ability to incur the risk associated with a broker recommended investment, if the investment was not in line with your financial needs or if you did not know or understand risks associated with certain investments, you may be able to recover your losses.

Over the past 35 years, I have helped thousands of victims of stockbroker misconduct recover monies lost through unsuitable recommendations. There are time limits that may apply, so call toll free at (800) 637-3243 or locally at (860) 677-4334. And be sure to call before you lose your rights!

Suitability Claims

Are you an investor who has lost money because you believe your broker made investment recommendations that were inconsistent for your age, income, investment objectives and/or investment risk tolerance? If so, you may be the victim of something called “unsuitability.”

Customer Suitability

In making an investment recommendation to a client, a broker must make recommendations that are consistent with the customer’s risk tolerance, needs and investment objectives. A broker has a duty to know his client and only recommend investments and trading strategies that are suitable for that client. An investment may be unsuitable if a customer does not have the financial ability to incur the risk associated with a particular investment, if the investment was not in line with the investor’s financial needs or if the customer did not know or understand risks associated with certain investments.

A broker has a duty to gather essential information in order to understand the risk tolerance of an investor, the tax considerations for the client, the client’s prior experiences and appetite for risk, and the level of return desired. It is the duty of a broker to make recommendations that are appropriate and suitable given his client’s circumstances. If a broker breaches those duties and makes unsuitable recommendations for a client, the broker may be liable to that client.

A broker must also have a “reasonable basis for the recommendation.” The broker’s basis for the recommendation can be the firm’s research, in which case the firm must have a reasonable basis for its own recommendation.

Quantitative Suitability

All brokers and broker-dealers must have a reasonable basis for recommending a series of transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken together in light of the customer’s objectives. Thus, while a small investment in a particular product may be suitable for the investor, a large portfolio concentration in the same or similar products may be unsuitable for the same investor. In addition, the pattern and type of securities activity in the account can also be unsuitable for the investor. Factors such as turnover rate, cost-equity ratio, and use of in-and-out trading tactics indicate excessive activity that violates quantitative suitability standards.

To help us evaluate whether you can seek recovery for "unsuitability" we offer a free and confidential claim evaluation, just click here to contact us, or call our office at any time at (800) 637-3243.

Client Reviews
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Howard Rosenfield is truly a life saver. After months of working with my financial advisor, I found out he was making risky investments without my knowledge. When I discovered how much money I lost, I thought there was nothing I could do. Howard explained all the difficult terms and what exactly my financial advisor did wrong. If it wasn't for Howard, I would never have recovered my losses and would be under extreme financial distress to this day. J.
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Howard’s experience and advice throughout this ordeal was invaluable and reassuring. The law in general is complicated, difficult to understand and very personal. Financial misappropriation is even more personal but Howard’s years of experience and calm demeanor helped keep me calm, focused and moving forward. For anyone in need of a knowledgeable and experienced Investment Recovery Attorney I strongly recommend Howard. Laura
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I was filled with anxiety and stress when I selected Attorney Howard Rosenfield to represent me. Instantaneously, I felt comfortable and at ease. Attorney Rosenfield listens attentively to the facts and asks questions and competently reiterates and verifies the accuracy and completeness of my statements. Perseverance, trustworthy and superb legal and communication skills mark Attorney Rosenfield to be one of the best in his field of law. Helen