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 recommendation:
- 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.