We seek compensation for investors who lost money as a result of unsuitable investments recommended to them by their investment advisors or brokerage firms.

Securities broker-dealer firms and professionals have a duty to only recommend to their customers investments that are suitable for those customers’ investment profiles, experience, and risk tolerance.

The securities regulators have enacted extensive suitability rules and regulations applicable to a broker’s recommendations with regards to specific investments. Brokers must ascertain the suitability of investments for each individual customer, based on factors such as:

  • financial health
  • tax status & age
  • current portfolio
  • risk tolerance & investment experience
  • liquidity
  • investment goals

An unsuitable investment may comprise one, two, or all three characteristics.

For instance, illiquid investments are typically unsuitable for elderly investors, who may need cash on short notice for medical expenses. Similarly, high-risk, volatile investments are typically unsuitable for investors with limited experience and low risk tolerance.

The typical suitability analysis that must be conducted by an investment professional involves three steps:

  • First, the broker must evaluate the investment and conduct due diligence to be able to reasonably determine whether the investment is suitable for any investor; for instance, an investment that is fraudulent – such as a Ponzi scheme – would certainly not be suitable for any investor.
  • Second, the broker must determine if the investment is suitable for the specific customer to whom the broker intends to recommend it. For instance, an investment that is appropriate for a young investor with a stated high-risk tolerance who clearly accept the risk of loss in exchange for the possibility of big returns may be unsuitable for an elderly pensioner who simply wishes to maintain their savings and who depends on steady income from their investment portfolio.
  • Third, the broker must determine the quantity, or amount, that may be appropriate for the particular customer, to avoid over-concentration or “putting all the customer’s eggs in one basket.”

Investment professionals have a “suitability” duty to evaluate the investments they recommend to their customers, and take their customers’ investment profile into account when making an investment recommendation. Professionals who breach this duty may be liable for losses suffered by their customers as a result of improper recommendations.

If you believe you may have lost money due to a broker or investment professional’s unsuitable recommendations please contact us for a free, no-obligation consultation regarding your legal situation and potential recovery options, by phone at 888-998-0530, via email at arosca@roscalaw.com, or through the contact form on this page.