• Staff Attorney

How to Sue Financial Advisor for Unsuitable Investments

Updated: Apr 22, 2019


Suitability Analysis

Financial advisors have a duty to their clients to recommend suitable investments and investment strategies. There are three primary criteria used when evaluating whether a financial advisor recommended a suitable investment or investment strategy:

  • Reasonable-Basis Suitability: Whether the financial advisor appropriately researched and performed due diligence on the investments recommended to the client.

  • Customer-Specific Suitability: Whether the investment or investment strategy was appropriate and suitable for a particular investor in light of the investor's profile.

  • Quantitative Suitability: Whether the investment or investment strategy was appropriate relative to proper asset allocation and diversification.

Reasonable Basis Suitability Focuses on the Investment

All financial advisors and brokerage firms have an obligation to research and perform appropriate due diligence on an investment prior to recommending an investment to a client. Appropriate due diligence may include researching the risks associated with an investment, the nature of a company's business, the company's financial history and general market conditions. Financial advisors must also believe that the investment is appropriate for at least some investors.

The nature and extent of research required for a particular investment varies by they type and complexity of each investment. For example, private placements require greater due diligence than a stock listed on an exchange because private placements usually have limited public information. If your financial advisor recommends an investment without adequately researching the investment and you suffer losses, then you may have a claim for suitability.


Customer-Specific Suitability Evaluates if the Investment is Appropriate for a Particular Investor

All financial advisors and brokerage firms have an obligation to research and perform appropriate due diligence on an investment prior to recommending an investment to a client. Appropriate due diligence may include researching the risks associated with an investment, the nature of a company's business, the company's financial history and general market conditions. Financial advisors must also believe that the investment is appropriate for at least some investors.

The nature and extent of research required for a particular investment varies by they type and complexity of each investment. For example, private placements require greater due diligence than a stock listed on an exchange because private placements usually have limited public information. If your financial advisor recommends an investment without adequately researching the investment and you suffer losses, then you may have a claim for suitability.

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