Do you suspect that your broker recommended a bad investment for you? Your question is one of suitability. A broker must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security is suitable for the customer, based on the information obtained through the reasonable diligence of the firm to find out the customer’s investment profile. Let’s break down what reasonable basis is. It means that the broker must conduct some preliminary due diligence regarding the investment product. The broker would want to look into the investment’s filings with the SEC, look at past performance, and some its potential risks. At that point, the broker would compare the findings of her research to your investment profile. An investment profile is made up of personal information that you provide your broker. It includes your age, tax status, time horizon for investments, past investment experience, risk tolerance, among other financial information. The comparison of the investment to your investment profile is a crucial step.
Your broker has a duty to only recommend investments that are suitable for your investment goals.
If a broker recommends an investment product to you and it doesn’t match your investment profile, that broker has failed his or her duty to only recommend suitable investments. It is important to note that once a broker recommends an unsuitable investment, and you end up agreeing with him/her, it is still considered unsuitable. Put another way, it does not matter if you agree to the broker’s recommendation because they have a duty to only recommend suitable investments to you. The rationale is that you are paying the broker to invest your money in a manner consistent with how you instructed them to when you hired them. Thus, you are relying on them to invest on your behalf. In the unfortunate event you lose money on this unsuitable investment, you can sue your broker for breaching their duty to only recommend good investments to you.
This is very common. If you suspect your broker is recommending unsuitable investments to you, you should contact a lawyer. Most investors notice that their portfolio has lost a considerable amount of money and question how it happened. In that initial consultation, the lawyer will analyze your account statements and your initial “Account Form” which includes your biographical data, investment experience, risk tolerance, etc. After this initial review, the lawyer will determine if you have a case or not – i.e. whether or not the broker was recommending unsuitable investments to you.
Sean M. Sweeney is a shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and the head of its Securities Litigation team.
He represents individual and institutional investors in FINRA arbitration and court nationwide. He recovers investment losses from fraud or breach of duty from their broker-dealer.
Contact him at (414) 755-5020 or via e-mail at SMS@hallingcayo.com to see if he can help recover your funds.