If you invest in securities, whether they are mutual funds or stocks, you are doing so with large quantities of money. You may be making the investment as savings for retirement, for your family, or to leave an inheritance. If you are investing for an important reason, you may decide to work with a broker or financial advisor. Most brokers and advisors use the appropriate degree of care when making recommendations or taking other actions regarding clients’ investments. However, if you lose money due to unsuitable investments, you may be able to bring a claim against the broker or financial advisor who made the recommendation. Raymond A. Grimes is a skillful New Jersey securities litigation attorney who can help you determine your options and represent you in a claim.Reasonable Basis for Recommending a Security or Executing a Trade
FINRA Rule 2111 is based on the fundamental FINRA requirement that brokers and financial advisors deal fairly with customers. Brokers are supposed to execute a trade on your behalf only with reasonable grounds for believing that the recommendation is suitable for you based on your profile. Likewise, financial advisors are supposed to have a reasonable basis for recommending a security or investment strategy to a customer. Unsuitability is a claim commonly arbitrated before FINRA.
A recommendation should be consistent with your investment objectives, needs, and risk tolerance. Investments can be unsuitable based on personal characteristics, such as when someone is elderly or saving for their children’s college education. Investments that could potentially be subject to an unsuitability claim, depending on your personal characteristics and risk tolerance, include hedge funds, mutual funds, closed-end funds, stocks, exchange-traded funds, fixed annuities, fee-based managed accounts, municipal bonds, and corporate bonds.Unsuitable Investments
Each investor is different. When a broker does a client intake, they are supposed to conduct an application process that provides the investor’s age, employment, prior investment experience, risk tolerance, portfolio size, investment goals, and other information. An investor’s risk tolerance is especially important when a broker or financial advisor makes a recommendation related to securities. A younger person may be able to take greater risks than an elderly person. For example, a highly risky oil and gas investment might be a worthwhile gamble for a sophisticated and young investor, while the same investment could be highly deleterious to an elderly person who does not understand the degree of risk involved and is simply trying to make sure that his retirement funds last through his retirement.
The purpose of putting together a profile is to give the broker a sense of who you are and what you are trying to achieve with your investments. Some people are trying to save for retirement. Others are saving for their kids’ education. Still others are trying to grow their personal wealth. After a profile of an investor is created, the broker has a duty to put together a portfolio reflecting all of those characteristics and preferences.Rule 10b-5 Claims
You may have grounds to sue for unsuitability under Rule 10b-5. In order to satisfy federal securities law requirements in a claim of unsuitable investments, you will need to show that the securities bought were unsuited to your needs as a buyer, the defendants knew or reasonably should have thought that the securities were unsuitable for you, they recommended unsuitable investments anyway, the defendants knowingly and materially misrepresented or failed to disclose material information related to unsuitability, and you justifiably relied to your detriment on those misrepresentations or failures to disclose.
Different federal courts have interpreted unsuitability under 10b-5 differently, so it is important to consult an experienced securities attorney.Breach of Fiduciary Duty Claims
Brokers owe a fiduciary duty to investors. This means that they are supposed to treat an investor’s best interest as if it were their own. If a broker fails to act in a client’s best interest by recommending an inappropriate investment, the client might have not only an unsuitability claim but also a breach of fiduciary duty claim.Hire a Skillful New Jersey Attorney to Pursue Your Losses
If you believe that improper conduct by a financial professional caused you to suffer losses, you should contact a securities litigation lawyer. At the Grimes Law Firm, we represent investors throughout New Jersey and the tri-state area from our office in Somerset County. Call us at (908) 371-1066 or contact us via our online form to find out about your potential next steps.