Suitability – Important Information for Every Investor

Before your broker or investment adviser sells you any securities, they are required to ask questions about your investment experience, investment goals, net worth, income, and more. This is because the Financial Industry Regulatory Authority (FINRA) Rule 2111 mandates that broker-dealer firms and their representatives ensure that every investment is fair for a client’s individual needs. This standard of fairness is known as suitability.

Know Your Investment Profile

The suitability standard dictates that broker-dealer firms and their representatives “must have a reasonable basis to believe” when they recommend and investment or an investment strategy that the securities and strategies in question are suited to their clients needs, goals, and experiences. This belief should reflect information gained through a “reasonable” due diligence effort to determine the customer’s investment profile. The suitability standard requires broker-dealer firms and their representatives to gather information about the client’s following characteristics:

  • Age;
  • Other investments;
  • Financial status and needs — net worth, liquid income, other factors;
  • Tax status;
  • Investment objectives — creating income? Saving for retirement? Purchasing a home?
  • Investment experience;
  • Investment time horizon — when you want to reach certain financial goals or thresholds;
  • Liquidity needs;
  • Risk tolerance.

To reiterate, broker-dealer firms and their representatives are required to seek out this information before recommending any investment or investment strategy. The onus is on the firm, broker, or investment adviser to determine a customer’s profile, not on the customer to provide it himself or herself. When a customer is unavailable or unable to provide relevant information when it is requested, the firm or representative may limit its recommendations. That is, even absent certain information, firms and brokers are permitted to recommend investments or strategies based on what they know to be suitable for the customer. Since every investment is different and every customer is different, standards of suitability vary from case to case.

If you have lost money as the result of an unsuitable investment, call the securities and investment fraud law firm Fitapelli Kurta at 877-238-4175 for a free consultation. You may be eligible to recover lost funds. All cases are taken on contingency: we only receive payment if and when you recover money. You may have a limited window to file your complaint, so we encourage you to avoid delay. Call 877-238-4175 now to speak to an attorney for free.