Unsuitable Investment Recommendations
A broker is expected to use his (or her) professional training, knowledge, and experience to provide his (or her) customers with recommendations regarding potential investments and investment strategies. Importantly, however, it is not enough for a broker to “just” provide investment advice. A broker also has a duty to make sure that any investment recommendations he (or she) provides to a customer are suitable for that particular customer based on, among other things, the customer’s age, wealth, tax bracket, investment experience, financial sophistication, investment objectives, financial needs, tolerance for risk, and investment time horizon.
In order to satisfy his suitability obligations, a broker must know his customer, and he (or she) must fully understand the investment or strategy that he is recommending. That means that the broker needs to take the time to personally meet with you and understand your specific investments needs and objectives. He should ask you detailed questions about your financial goals, take careful notes about the answers you give, and then develop an accurate investment profile of who you are. He should also carefully research the investments and strategies he intends to recommend, he should review the most current prospectuses and research reports regarding those investments and strategies, and he should read any recent and relevant articles and academic papers. When you agree to pay your broker a commission or any other fee, this is what you are paying for.
Importantly, no one investment or investment strategy is suitable (or unsuitable) for every investor. For example, if you are an elderly investor interested in stable investments that will generate steady income for you, it would probably be unsuitable for your broker to recommend that you invest in a concentrated portfolio of small cap growth stocks. On the other hand, if you are interested in pursuing a growth strategy but you are concerned that you might need to have access to your funds in the next 2-3 years, it would probably be unsuitable for your broker to recommend that you invest in long-term, illiquid investments. And if you are a novice investor with limited financial experience, it would probably be unsuitable for your broker to recommend that you pursue a leveraged strategy involving compound option positions. As these example illustrate, issues of suitability can only be determined on a case-by-case basis.
If your broker recommended unsuitable investments or investment strategies to you, contact Jacobson Law P.A. to discuss the specific facts of your case. You may have a claim and could be entitled to recover damages.