One of the key tenets of the FINRA's (formerly NASD) guidelines for brokers is the “know your customer” rule. It is considered the stock broker’s responsibility to understand his or her clients:
- Their levels of expertise
- Familiarity with the securities market
- Unique tax considerations
- Acceptable risk levels
- Overall investment goals.
The stock broker is expected to understand all of these factors and make appropriate recommendations to his or her clients based on what is best for the client.
What if a Stockbroker Makes Unsuitable Recommendations?
When a stock broker makes unsuitable recommendations, the financial damages can often be devastating to the client resulting in financial losses and long-term insecurity. A lack of suitability claim can arise from either intentional manipulation-usually to benefit the broker-or from a simple lack of diligence and failure to sufficiently research the investments or the client’s individual needs.
What is an Unsuitable Investment?
Some key indicators of an unsuitable investment recommendation include:
- Inability to incur the predictable risks of the investment
- Investments that are not in line with your individual financial needs
- Investments in which the broker does not warn you of the level of risk
- Investments that do not have a ‘reasonable basis’ for recommendation
In some cases, your stockbroker may try to convince you to purchase a stock that is currently being aggressively marketed by his or her brokerage firm. Your broker may fabricate or exaggerate information to make the stock seem appealing or otherwise try to steer you toward making an investment that may not be in your better interests.
One very common type of unsuitable investment includes high-risk options such as penny stocks and junk bonds, which are usually suitable only for experienced, risk tolerant investors.
Count on Our Stockbroker Fraud Attorneys
If you or a loved one believes you have sustained financial losses as a result of your stockbroker’s unsuitable recommendations, you may be able to recover damages for those losses. To help you determine whether fraud has occurred, and to recover your losses, your first step is to contact one of our experienced stock fraud attorneys. We will evaluate your lack of suitability claim for free and then fight to get your money back.