Brokers are required to conduct a “Suitability Review” to determine if a specific investment or investment strategy is appropriate for a given customer. The NASD has specific conduct rules where a broker recommends to a customer the purchase, sale or exchange of any security. The broker/dealer and the registered representative shall have reasonable grounds for believing that the recommendation is suitable for each customer on the basis of the facts, if any, disclosed by the customer as to his/her other security holdings and as to his/her financial situation and needs. Prior to the execution of any transaction the broker/dealer and the registered representative involved shall make reasonable efforts to obtain information concerning: (a) the customer’s financial status, (b) the customer’s tax status, (c) investment objectives and (d) such other information used or considered to be reasonable in making recommendations to the customer.
Duty to Know Your Customer (FINRA Rule 2090):
The basic rule of broker-customer relationships is “know your customer”. Brokers are required to obtain a detailed knowledge of a customer’s assets, income, investment objectives and risk tolerance to be in compliance with the NASD/FINRA and other regulations. The surest indication of a failure to follow these rules in customer relationships is a pattern of sales or other transactions obviously designed to reward the registered representative rather than meet the customer’s needs.
Suitability Rule (FINRA Rule 2111)
The suitability rule requires that a financial advisor and his/her firm have a reasonable basis to believe that a recommended investment strategy is suitable based on a customer’s investment profile. The rule requires “reasonable diligence” to determine information concerning a customer’s investment profile, including the following: age; other investments; employment status; tax status; investment objectives; financial situation; investment experience; investment time horizon; liquidity needs; and any other information disclosed by the customer in connection with a recommendation.
If you were sold unsuitable investments that resulted in a substantial loss immediately contact the attorneys at Mathews Giberson LLP to learn more about your rights.