UNSUITABLE INVESTMENT STRATEGY?
Investment Recommendations Should Fit the Investor
Investors rely on financial professionals to provide recommendations that take into account their financial circumstances, investment objectives, risk tolerance, and other relevant considerations. When an investment recommendation is inconsistent with an investor’s needs or circumstances, substantial losses can follow.
Amloyan Law represents investors in disputes involving unsuitable investment recommendations and related misconduct. These matters may involve individual financial professionals, brokerage firms, investment products, or investment strategies that exposed an investor to risks that were inconsistent with the investor’s financial profile or objectives.
If you suffered significant investment losses and have concerns about the recommendations you received, speaking with an attorney can help you understand whether the circumstances warrant further investigation.
Contact Amloyan Law for a confidential consultation regarding your investment losses.
What Is an Unsuitable Investment Recommendation?
An investment can lose value without anyone having done anything wrong. Investment losses alone therefore do not necessarily establish a legal claim.
Concerns may arise, however, when a financial professional recommends an investment or investment strategy without an appropriate basis for concluding that the recommendation is suitable for the particular investor or otherwise consistent with applicable obligations.
Whether a recommendation was appropriate can depend on numerous circumstances, including the investor’s:
Age and financial circumstances
Income and liquidity needs
Investment experience
Investment objectives
Risk tolerance
Time horizon
Other investments and overall portfolio
Tax considerations
Need to preserve capital
The characteristics of the investment itself also matter. An investment may involve significant risks relating to volatility, liquidity, leverage, concentration, complexity, duration, credit quality, or loss of principal.
As a result, an investment that may be appropriate for one investor may be inappropriate for another.
Warning Signs of a Potentially Unsuitable Investment
Investors sometimes become concerned about an investment only after substantial losses occur. Other times, questions arise when they learn that the investment carried risks or restrictions they did not fully understand when the recommendation was made.
Potential warning signs can include circumstances in which:
A substantial portion of an investor’s assets was placed into one investment, sector, or strategy;
A conservative investor was exposed to unexpectedly significant risk;
An investor needing access to funds was recommended an illiquid or long-term investment;
The risks of an investment differed materially from how the investment was presented;
Complex or speculative products were recommended without adequate consideration of the investor’s experience or objectives;
An investment strategy appears inconsistent with information contained in the investor’s account documents;
The investor was repeatedly encouraged to accept greater risk than anticipated; or
The recommendation appears to have been driven by considerations other than the investor’s financial interests.
No single factor necessarily establishes that misconduct occurred. Determining whether a recommendation was improper generally requires consideration of the investor, the investment, the recommendation, and the surrounding circumstances.
Unsuitable Investment Claims Can Involve Many Types of Investments
Suitability concerns are not limited to any particular security or investment product.
Disputes may involve stocks, bonds, options, private placements, alternative investments, structured products, non-traded investments, concentrated positions, complex investment strategies, and other financial products.
The central issue is often not simply whether the investment declined in value. Instead, the inquiry may include why the investment was recommended, what risks it presented, what the financial professional knew about the investor, what representations were made, and whether the recommendation was appropriate under the circumstances.
Brokerage Firms and Financial Professionals
Investment disputes may involve more than the conduct of an individual financial professional.
Depending on the circumstances, questions may arise concerning a brokerage firm’s supervision of its representatives, review of investment recommendations, approval of particular products or strategies, account documentation, compliance procedures, or response to warning signs.
A careful evaluation of an investment-loss matter may therefore require examination of both the recommendation itself and the broader circumstances surrounding the investor’s account.
FINRA Arbitration and Investment Losses
Many disputes between investors and brokerage firms or registered financial professionals are resolved through arbitration administered by the Financial Industry Regulatory Authority, commonly known as FINRA.
FINRA arbitration differs from traditional litigation in several important respects. The appropriate forum, available claims, applicable deadlines, evidence, damages, and procedural requirements depend on the particular circumstances.
Investors who believe they may have a claim should consider obtaining legal advice promptly. Waiting can affect the availability of evidence and may implicate applicable time limitations.
Evaluating a Potential Unsuitable Investment Claim
Determining whether an investor has a viable claim requires more than reviewing the amount of the loss.
An attorney may need to examine account statements, investment documents, communications with financial professionals, risk-profile information, transaction history, offering materials, and other records relating to the recommendation.
Among other issues, an evaluation may consider:
What was the investor told?
The representations made about the investment’s risks, expected performance, liquidity, and purpose may be important.
What did the financial professional know about the investor?
Financial circumstances, investment objectives, experience, liquidity needs, and risk tolerance may bear directly on the appropriateness of a recommendation.
How much of the portfolio was exposed?
Even an investment that might otherwise be appropriate can create different concerns when it represents a disproportionate percentage of an investor’s assets.
What risks did the investment actually present?
The nature and magnitude of the risks may differ significantly among investments and strategies.
What caused the investor’s losses?
The circumstances surrounding the losses can be important when evaluating potential claims and damages.
Every investment dispute is different. The existence and strength of any claim depend on the specific facts.
Significant Investment Losses Deserve Careful Review
Discovering that an investment was substantially riskier than expected can leave an investor with difficult questions.
Was the investment appropriate for my financial circumstances?
Did my financial professional understand the risks?
Why was this particular investment recommended?
Should my brokerage firm have identified a problem?
Do I have a potential claim to recover my losses?
Those questions cannot be answered from investment performance alone. A review of the investor’s circumstances, account activity, investment characteristics, communications, and supporting documents may provide a clearer picture of what occurred.
Speak With an Investment Dispute Attorney
If you suffered significant investment losses after following the recommendation of a broker or financial professional, Amloyan Law can evaluate the circumstances surrounding your investment and discuss potential legal options.
We represent clients in securities disputes involving unsuitable investment recommendations and other forms of alleged investment misconduct.
Contact Amloyan Law to request a confidential consultation.
Prior results do not guarantee a similar outcome. The information on this page is provided for general informational purposes and does not constitute legal advice. Reading this page or contacting the firm does not, by itself, create an attorney-client relationship.