Unsuitability or Lack of Diligence as to Accounts
Before an investment professional can make any recommendation to an investor, the investment professional must determine if the investment is suitable. FINRA Rule 2310 is referred to as the “suitability rule” in the securities industry. The definition of suitability comes from the FINRA Suitability Rule, Rule 2310, which requires the investment professional to get to know the investors in order to be able to make a recommendation that meets that particular clients investment needs and is not an unsuitable investment. An investment professional should understand things such as the investor’s investment objectives, risk tolerance, occupation, age, and net worth. Understanding this information prior to making any recommendations is vital to ensure the investment professional is not recommending an unsuitable investment.
More often than not investment professionals either don’t take the time to truly understand what an investor’s particular investment needs, goals, and risk tolerance are, or this information is ignored. A few examples of unsuitable investment recommendations include elderly investors that are recommended long-term investments, investors with short time horizons being invested in the stock market or mutual funds, tax deferred variable annuities being sold to investors in retirement accounts, tax-free municipal bonds being sold to investors in retirement accounts, CD investors being sold high yield bonds or high yield bond funds, young professionals being sold annuities, structured products being sold to investors needing safe income, and concentrated investments strategies being sold to any investor. This list represents only a few examples. Any time an investment professional fails to make an investment recommendation that meets a client’s investment needs and objectives, a potential suitability claim is present.
NYSE Rule 405
Among other things, as an example of the prudent management, NYSE Rule 405 provides that every member organization is required through a principal executive or a person or persons designated under the provisions of Rule 402(b)(1) to use due diligence to learn the essential facts relative to every customer, every order, every cash or margin account accepted or carried by such organization and every person holding power of attorney over any account accepted or carried by such organization.
Legal Help for Victims of Securities Fraud
The Investment Losses Law Firm of Gilman Law LLP is a leading securities fraud and financial fraud law firm and is here to help you receive recover damages for your unsuitability claim. For a FREE consultation and evaluation of your case, please complete our Free Consultation Form Online, or if you need to speak to a securities attorney right away CALL TOLL FREE (888) 252-0048 today.