Suitability Claims

When an investor opens up a new brokerage firm, the investor signs a contract binding them to arbitration. This article outlines suitability claims – one of the most common type of arbitration dispute between customers and brokerage firms.

Claims of unsuitable recommendations are usually based on Financial Industry Regulatory Authority (FINRA) Rule 2130(a), that says: When recommending to a customer the purchase [or] sale of any security, a member shall have reasonable grounds for believing that the recommendation is suitable for such customer upon the basis of the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.

The Suitability Rule applies when a broker recommends an investment to a customer. A confirmation slip marked "solicited" is usually good evidence of a recommended transaction; however a confirmation slip is not the final determination on whether a transaction was recommended.

The Suitability Rule says that it applies to any broker who recommends either a "purchase [or] sale."

The FINRA Rule requires that brokers inquire about the essential facts of the investment, financial status investor and the investor’s investment objectives. When an investment account is first opened, brokers complete a "New Account Form.” The New Account Form, when accurate, provides a guide to the type of investments that are "suitable" for that particular customer.

The arbitrator(s) must then determine if a particular investment recommendation was appropriate given the investor’s needs and objectives. Arbitrators are given wide latitude in making these determinations.

If you believe your broker made unsuitable recommendations please feel free to contact us for a free consultation.