The Uniform Securities Act requires IAs to determine the suitability of investment recommendations given each client's circumstances. Failure to do so is considered an unethical business practice and is subject to the penalties referred to in previous sections.
The following practices are examples of violations of the suitability rules:
- Recommending securities without having a reasonable basis for the recommendation
- Recommending securities without taking the client's financial situation, needs and objectives into account
- Recommending the same security to all clients
- Failing to describe important facts and risks about the security to each client
- Churning in a client account (making trades too frequently in order to increase commission)
- Providing services that are not appropriate to the client's situation and needs
- Failing to inquire into a client's tax situation, risk tolerance and other assets
The Investment Advisers Act of 1940 also defines "failure to meet suitability standards" as an unethical practice.
- An IA who does not make reasonable inquiry or suitable recommendations, given the information from such an inquiry, is guilty of violating the suitability requirements.
Prudent Investor Standards
Financial AdvisorDiscover the differences between the Suitability and Fiduciary Standards when hiring a financial advisor.
Financial AdvisorYou can't control how they react to the market, but you can help them understand the reality of the situation.
RetirementThis a fundamental concept from both a legal and practical perspective.
RetirementAltering retirement plans is tough, but when the retiree is unprepared, it's very necessary.
Financial AdvisorAs a financial advisor managing your client's assets is only part of the job; sometimes you have to manage your client, as well.
Financial AdvisorFinancial advisors should avoid generalizing a client’s risk tolerance based on their age or other demographics.
Financial AdvisorFinancial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
ProfessionalsFiring the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
Managing WealthIs your advisor working for you, or for him/herself? Find how to tell the difference.
Financial AdvisorManagers, in developing their investment process, need to determine some “general rules” that make it meaningful. We offer six.