What does “unsuitability” mean in the context of broker misconduct?

Question: What does “unsuitability” mean in the context of broker misconduct?

Response:  If you believe that your broker has breached their fiduciary duty to you by investing in unsuitable securities, you should immediately consult an experienced securities attorney.  A broker has a duty to only recommend investments and trading strategies that are suitable for each individual client.  A broker has a duty to collect all relevant information about her client to competently assess their risk tolerance.  The broker must consider, among other things, the tax considerations for the client, the client's prior investment experiences and appetite for risk, and the level of return desired.  A broker must also have a reasonable basis for her investment strategy, including but not limited to relying on her own research.

An investment may be unsuitable if the client does not have the financial ability to incur the risk associated with a particular investment or if the investment was not in line with the investor's financial needs.

For example, it might be “unsuitable” for a broker to heavily rely upon bonds and lower risk stocks for a retirement account for an older adult rather than investing in high risk stocks only.  The issue is not whether a broker picked the right stock(s); the question is whether the broker picked the right type of investment.

Answered by Jamilla Moore

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