The National Association of Securities Dealers (NASD), which regulates and oversees brokers, has established a series of key tenets and guidelines that brokers must adhere to. One of the most important of these guidelines is the rule “know your customer”.
Know Your Customer
People depend on their brokers to help them manage their investments in the way that is best suited to their needs and interests. This is why the “know your customer” guideline is so essential to competent financial management.
Many clients hire brokers specifically because they don’t have the time or the expertise to manage investments on their own, and in these cases, the broker is responsible for providing the guidance and expertise necessary to wisely invest those customers’ funds.
The Elements of Lack of Suitability
When brokers fail to do take their customers’ interests into account, and recommend inappropriate investments to their clients, it is referred to as lack of suitability. Any number of factors might make a particular investment or investment scheme unsuitable for a specific investor, including:
- Recommending known risky investments for clients who do not have the means to incur predictable losses.
- Recommending risky investments without warning the buyer of those risks.
- Investments that do not suit the client’s investment needs, including recommending higher risk or lower yield investments than the customer requires.
- Any other investments for which the broker does not have a reasonable basis for recommendation.
A broker may make an unsuitable recommendation for any number of reasons. In some cases, the broker may simply be negligent in taking the client’s needs and interests into account. In others, he or she may be trying to influence clients into investing in high risk stocks being marketed by the brokerage, including such investments as penny stocks and junk bonds, which are generally unsuitable for all but the more experienced and risk-tolerant investors.
How to Get Help
If you or someone in your family has suffered financial losses as a result of a broker’s unsuitable recommendations, you may be able to recover some or all of your losses. However, it is essential that you seek help immediately, as your legal rights are time-limited.
To review your case and determine whether you have a provable lack of suitability claim, or other stockbroker malfeasance case, contact an attorney in your area who has training and expertise dealing with securities law today. He or she can examine your investment portfolio with you and help you determine whether you have a securities fraud case worth pursuing.
