There was a reason why your brokerage firm had you fill out a new account
form when you started working together. Under the incorporated
New York Stock Exchange (NYSE) Rule 405, brokers are required to use due diligence to obtain facts about clients
before making investment recommendations. Anunsuitability claim may arise
when an investment is made that is not compatible with the investor’s
objectives and investing profile.
You can avoid financial loss from
unsuitable trades by following the advice provided by the
Financial Industry Regulatory Authority (FINRA), the largest independent regulator for all U.S. securities firms:
- Make sure you read the terms of any agreements you are requested to sign
with the brokerage firm. However, it’s not enough that you read
the terms; you need to understand them.
- Be as accurate as you can when filling out your new account form. Don’t
inflate your new worth or income and don’t allow a third party to
fill out the form.
- Review your monthly statements and any confirmations you receive in the
mail regarding recent transactions.
- Don’t be afraid to ask questions. You need to feel comfortable that
the investment decisions made on your account are consistent with your
- Maintain records of communications you have with your broker. Write down
the details of phone conversations you have had and keep copies of other