Unsuitability


New York Stock Exchange Rule 405 requires that stockbrokers and financial advisors make suitable investment recommendations to their clients. This rule is called the “know your customer rule. Unfortunately, many investment advisors broke this rule when advising conservative investors to purchase oil and gas investment stocks.

Investment advisors advised retirees and others looking for low risk, high-yield investment income that they should invest in energy stocks with little or no risk because energy companies had business models that would generate steady cash flow regardless of the volatility of oil prices. Unfortunately, investments in oil and gas have fallen 50 percent or more in a short period of time. Experienced investors understand the risks associated with such investments. However, less sophisticated investors who were misled by their financial advisors have options for recovering their losses.

Financial professionals who violated the “know your customer rule can be held accountable for the bad investment advice they provided to those who invested in oil, gas and energy stocks, master limited partnerships, or funds that were heavily concentrated in oil and gas stocks. You can make an unsuitability claim to recover all or a portion of your losses with the help of a financial fraud attorney at Zamansky LLC.

Making an Unsuitability Claim

When providing advice to investors, stock brokers and financial advisors should consider the following factors:

  • The current financial state of the investor;
  • The investor’s goals for investing and what the investor hopes to achieve;
  • The future financial needs of the investor; and
  • The investor’s tolerance for risk.

When financial advisors fail to take these four factors into account and recommend investments that are not suitable for a particular investor, the advisor is may be liable in an unsuitability claim alleging stockbroker misconduct. Oil and gas investment funds, energy stocks, master limited partnerships, and other investments tied to the price of oil are high-risk investments which are not suitable for conservative investors.

Despite assurances that gas and oil securities are not affected by the volatility of oil prices, these investments have experienced significant declines as the price of oil has plummeted. Conservative investors who placed their trust in financial advisors and who believed that these were safe investments can bring an action for unsuitability.

To prove an unsuitability claim, you must establish that:

  • A transaction took place;
  • You sustained damages (lost money); and
  • The broker was aware of your financial situation and your need for safe investments.

Recovering Your Investment Losses

Zamansky LLC’s experienced securities fraud lawyers have more than six decades of collective experience representing investors nationwide. We have taken on some of the biggest brokerage houses in the business and have made it our focus to seek recovery of investment losses due to the negligence or fraud of financial professionals. If you have questions about how your stockbroker or financial advisor handled your account, contact us today to speak with a financial fraud attorney.