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Unsuitable Trades Can Lead to Financial Loss

David P. Meyer, Esq.

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 objectives.
  • Maintain records of communications you have with your broker. Write down the details of phone conversations you have had and keep copies of other correspondence.