Suitability means that investment products are appropriate for you in terms of your individual goals, finances, time horizon, and risk tolerance. Occasionally investors complain that they’ve been urged to make unsuitable investments — or buy investments that don’t really help them achieve their investment goals.
For example, if you were about to retire and a broker recommended you put the bulk of your retirement money into small company stock,
this may be an inappropriate recommendation depending on your particular situation. Or if you had a low tolerance for investment risk and your broker recommended a high-yield bond fund, it might be unsuitable.
Brokers may make unsuitable recommendations because of a misunderstanding about the client’s financial situation or risk tolerance. Other times, he or she may recommend an investment that is not in the best interest of the client. You can usually avoid these situations by paying careful attention to detail, doing some independent research, and being willing to ask hard questions.
1.
Before you invest any money, make sure you understand how the investment works and what it’s designed to achieve for your portfolio.
2.
Review any information your broker sends you about an investment. In particular, read the mutual fund or variable annuity prospectus,
which details risks, fees, and how the investment works.
3.
Before buying anything, ask your broker about the commissions he or she will make on your transaction.
It’s smart to review
periodically what the firm has on file regarding your account to make
sure it’s accurate, including your client profile and account
agreements. You should update the information if your situation changes.
If you have to pursue a complaint against the broker with the firm’s
compliance department or securities regulators, they will use this
documentation to verify your claim.
