FINRA Arbitration Attorneys
Brokers have a duty to provide advice and recommend investments that are in their customers’ best interests and are consistent with the goals and risk tolerances the customer has expressed. “Unsuitability” is a term used to describe recommendations and trades that are inappropriate for the customer and inconsistent with his or her goals. When recommending an investment, brokers are required to take the time to fully understand an investor’s particular financial situation, investment goals, and ability to tolerate risk. A broker should analyze each investment and trading strategy and recommend only those that are suitable and consistent with the customer’s individual investment needs and objectives. If an investor suffers financial losses as a result of an unsuitable recommendation, the broker’s firm may be liable for such losses. If you have questions about how your stockbroker or financial advisor handled your account, contact us today to speak with our experienced FINRA arbitration attorneys.
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 with FINRA Arbitration Attorneys
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.
Zamansky LLC’s experienced FINRA arbitration attorneys 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.
FINRA Rule 2111: Suitability
Financial Industry Regulatory Authority (FINRA) Rule 2111 addresses the unsuitability of brokerages’ investment advice. Rule 2111 requires brokers and brokerages to use “reasonable diligence” to investigate a customer’s investment profile when recommending a securities transaction or investment strategy. Under the FINRA Rule, a customer’s investment profile consists of a wide range of individual characteristics, including the customer’s:
- Financial situation and needs
- Tax status
- Investment objectives
- Investment experience
- Risk tolerance.
The FINRA suitability rule further imposes on brokers and brokerages the responsibility to deal fairly with the public: FINRA Rule 2111 is “fundamental to fair dealing and is intended to promote ethical sales practices and high standards of professional conduct.”
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An Experienced FINRA Arbitration Lawyer Can Help
Far too often investors discover that their investments are unsuitable for them. For example, suppose a broker recommends that an elderly, inexperienced customer with a low risk tolerance invest in a risky hedge fund or complicated structured product. If the customer does not understand the risks associated with the investment or does not have the financial ability to absorb losses, the customer may bring an unsuitability claim against the brokerage firm to recover losses that resulted from the investment.
The experienced FINRA arbitration attorneys at Zamansky LLC have represented hundreds of investors across the country from all walks of life. We know that all investors are different and their risk tolerances are specific to them. Each securities arbitration lawyer at our firm is well versed in suitability claims. When investigating a suitability claim, our attorneys carefully examine a client’s investment profile, taking into consideration unique financial and investment characteristics. We will aggressively prepare and pursue claims against the brokerage firm to recoup any financial losses a client suffered as a result of the unsuitable recommendation.
Contact the FINRA Arbitration Attorneys at Zamansky LLC Today
To determine whether you may be able to recover a loss due to a broker or brokerage’s unsuitable recommendation, contact our securities fraud law firm. Contact us today at 212-742-1414 or complete our contact form. Zamansky LLC responds to all inquiries within 24 hours and offers free, no-obligation initial consultations.