The Financial Industry Regulatory Authority is a self-regulatory organizaiton charged with regulating brokerage firms and their registered representatives. One of the most cited reasons for an investor complaint is that their broker recommended an unsuitable investment. Indeed, in 2012 1,354 cases were filed with FINRA Dispute Resolution claiming unsuitable investments.
In November 2010, the Securities and Exchange Commission (SEC) approved FINRA’s new suitability rule, FINRA Rule 2111.
Rule 2111 states “A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”
Rule 2111 is composed of three main obligations: reasonable-basis suitability, customer-specific suitability, and quantitative suitability. The reasonable-basis obligation requires a member or associated person to have a reasonable basis to believe, based on reasonable diligence, that the recommendation is suitable for at least some investors. The customer-specific obligation requires that a member or associated person have a reasonable basis to believe that the recommendation is suitable for a particular customer based on that customer’s investment profile. Quantitative suitability requires a member or associated person who has actual or de facto control over a customer account to have a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, are not excessive and unsuitable for the customer when taken together in light of the customer’s investment profile.
If you believe that your broker recommended an unsuitable investment or investment strategy, please contact The Law Offices of Place and Hanley. Our lawyers have represented numerous investors in cases involving unsuitable recommendations.
Call (888) 876-6450 for a no cost initial consultation.