Unsuitability

Financial Industry Regulatory Authority (FINRA) rules require brokerage firms to gather information about their customers before recommending an investment. Your age, financial situation, long and short-term liquidity needs, tax bracket, investment objectives and experience; retirement time horizon, and risk tolerance, as well as what other investments you currently have, all play a role.

For example, for a 75-year-old investor living on a fixed income, speculative investments like stocks valued under $5.00 or “penny stocks,” commodities or futures, “limited partnerships,” crypto currency, and the like would be unsuitable because they are simply too risky for someone who needs to preserve their savings to live on. They can’t afford to speculate with this money.

An investor’s age is not the only consideration when determining which investments are suitable or unsuitable. Some investors are willing to take on risk and can absorb losses on speculative investments, but most retirees are certainly not in such a position.

Even if the client insists on “building a position” in a stock that makes for overconcentration, say beyond 10% of a portfolio, the broker’s job is to give them better advice, considering suitability and related issues.

In FINRA arbitration, the question for the panel is “who was in charge here?” They will consider not just the activity in the account, but also the email and other communications that took place during the “relevant period.”