What Is Unsuitability?
Violations of the "Know Your Customer" Rule
Your broker has the obligation to obtain enough information about you and
your finances—such as your income and assets—to discuss the
appropriate investments. New York Stock Exchange Rule 405 (also known
as the "Know Your Customer" rule), states that a stockbroker
or financial advisor’s number one duty is to make suitable recommendations
to his or her customers. Brokers must take ample care to investigate the
investor’s unique needs and ensure that the investment will be proportionate
to their goals and financial situation.
Information that your broker should consider before making an investment
- Your current financial state
- Why you are investing and what you hope to get out of it
- Your future financial and situational needs
- Your tolerance for risk
Brokers not only should take steps to get to know their customers and their
investment goals. They should also adequately research the investment
before recommending it to you. After careful research, the broker should
know whether or not recommending that particular investment to you would
be suitable. Also, what is suitable for you now may not be suitable for
you in the future, so your broker’s job is to continuously evaluate
your needs as well as the state of the investment to ensure it remains
in a state of suitability.
Stockbroker Misconduct Cases
The investment advice you receive from your broker should be based on what
is most suitable for your current situation and future goals. When brokers
fail in their duty to adequately research the investment, or they knowingly
and intentionally recommend unsuitable investments, investors can file
claims to recover their resulting losses. These types of claims are generally
handled through FINRA arbitration, provided that the broker was registered
and working for a registered investment firm.
What It Takes to Have a Successful Unsuitability Claim
To have a successful case against your broker, there are some things you
will need to show:
- You have to prove that the transaction took place.
- You will need to provide details about your finances when investments were made.
- Your personal situation will need to be disclosed, such as your risk tolerance
and investment objectives. You will need to show that the investments
did not coincide with your situation.
- You must have sustained damages—meaning you lost money on the investment.
Enlist the Help of an Investment Fraud Lawyer
The securities arbitration lawyers at Meyer Wilson have represented more
than 800 investors and may be able to help you. We are experienced at
reviewing and investigating investor claims of unsuitability.
Call us or fill out our online form for your
free case evaluation.
Watch this helpful video of Attorney Dave Meyer explaining MLPs, which
are often unsuitably sold as supposedly safe ways to earn higher interest
rates with little to no risk.