Not every investment is suitable for every investor. Brokers have a duty to ensure their clients are invested in goal-appropriate holdings. For example, some investors may not be suitable for high risk investments.
When recommending an investment portfolio, FINRA’s suitability rule states that firms and their associated persons “must have a reasonable basis to believe” that a transaction or investment strategy involving securities they recommend is suitable for the customer. The firm or associated person must base this reasonable belief on information obtained through reasonable diligence in ascertaining the customer’s investment profile.
It is part of the broker’s duty to their client to recommend investments that are suitable for the individual needs and circumstances of their client.
Recommendations must be based on the facts and circumstances of each individual investor. Some considerations include age, investment history, financial status, tax status, investment objectives, investment time horizon, and education, among others.
Now try our puzzle!
1. Generating income, funding retirements, buying a home, preserving wealth or market speculation are examples of these. (2 Words)
2. Consider how the ___ _____ will cause you to pay more to the government upfront or upon withdrawal. (2 Words)
4. Investors with more _______ are considered less susceptible to trickery, so brokers should ask about what the investor’s experience in this area.
5. The older you are the more the more likely you are to invest in low risk investments that allow that focus on income growth. The younger you are the more likely you are to invest in risky, long term investments. For these reasons, brokers should take ___ into account.
3. ____ from a broker to the investor should be individualized based on and tailored to the individual’s own situation.
6. The expected time available to achieve a particular financial goal. (3 Words)