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The Financial Industry Regulatory Authority (FINRA) is an independent, not-for-profit organization authorized by Congress to protect America’s investors by making sure the securities industry operates fairly and honestly. This is accomplished, in part, by writing and enforcing rules governing the activities of more than 4,140 securities firms with approximately 633,155 brokers. As we have continuously pointed out on our website and blog, the securities business is highly regulated. One of the core issues of regulation, for the individual investor, relates to the issue of suitability.
While the concept of suitability has been with us for a while, the most recent rule pronouncement took place in November 2010 when the Securities and Exchange Commission (SEC) approved FINRA Rule 2111 (Suitability), which became effective on July 9, 2012. The suitability rule provides that:
“A member or an associated person must have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, investment time horizon, liquidity needs, risk tolerance, and any other information the customer may disclose to the member or associated person in connection with such recommendation.”
One of the most common claims made by a customer against a brokerage firm and/or account executive is that a particular investment or investment strategy is unsuitable for the client. To illustrate, consider the following example. An 80-year-old couple has a need for periodic income, is a non-dividend paying suitable? Is the recommendation of a taxable bond suitable for someone who is seeking tax free income? While these concepts are rudimentary, many issues relating to the concept of suitability are not that easy to discover. It is for that reason that you should only deal with an experienced FINRA arbitration and securities litigation attorney.
Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions, you should consult a qualified professional.Contact Us
With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.