What Is an Unsuitable Investment?

Investment professionals, such as brokers and financial advisors, are required to deal fairly with their customers. Part of this requirement involves making suitable investments. And as is discussed below, there are a  number of factors that brokers and financial advisers must examine when determining whether an investment is suitable for a particular client. However, when a broker or financial advisor fails to make investments that are suitable, he or she can face legal action.

Determining Suitability

The Financial Industry Regulatory Authority (FINRA) requires that investment professionals make investments that are suitable for their clients. Specifically, FINRA requires that brokers and financial advisors have a reasonable basis to believe that a recommended investment strategy or transaction is suitable for the customer. Suitability is determined by examining a number of factors, including:

• The age of the client

• The client’s other investments

• The client’s overall financial situation

• The client’s tax status

• The client’s investment experience

• The client’s investment objectives

• The client’s investment time horizon

• The clients' needs to convert investments to cash, i.e., liquidity needs

By examining factors such as these, investment professionals are able to determine what kinds of investments are best suited for their clients. In addition, brokers are generally required to learn as much as possible about their clients’ investment profiles before recommending a particular investment strategy or particular securities transaction. However, investors are not required to provide this information. Rather, FINRA places the obligation to collect information on investment professionals. Therefore, there may be situations in which investment professionals are forced to work with incomplete information when making investment decisions.

Investment Suitability and Limited Client Information

When an investment professional only has access to limited client financial information, he or she typically must narrow the range of its investment recommendations in order to ensure suitability. FINRA does not prohibit investment professionals from making investment recommendations in the absence of complete information. However, brokers and financial advisors must at least have enough information about their clients to make suitable recommendations. Whether an investment is suitable under these circumstances is determined by examining the facts of the particular case at hand. And it is for this reason that any investor who has suffered losses due to the investment choices of his or her financial advisor or broker should obtain the services of an experienced investor representation attorney, as investment professionals often attempt to avoid liability by claiming that they were forced to make decisions based on limited information.  

Investor Representation Attorney

At SIMMS LAW, P.A., one of our primary focuses is the representation of investors. The financial markets can result in great gains and losses, so expert legal representation is a must when attempting to navigate this complex area. At SIMMS LAW, we always take our clients’ concerns seriously and are aware of what is at stake when an investor suffers losses in the financial markets. Therefore, if you require expert legal guidance in Florida, please contact us for a consultation.