What Is a Blanket Recommendation?
A blanket recommendation is a recommendation sent by a financial professional or institution to all clients to buy or sell a particular security or product, regardless of whether the particular asset is compatible with their investment goals or risk tolerance.
- A blanket recommendation is a recommendation to all clients to buy or sell a particular security.
- These are usually ill-advised as investors have varying risk profiles and circumstances.
- The goal is usually to alert clients that a stock will make a big move in the near future.
Blanket Recommendation Explained
Typically, a blanket recommendation will give advice on whether to buy or sell a particular stock or sector. The goal may be to alert clients that the financial professional or institution's research indicates the stock or sector in question is likely to make a big move in a certain direction. If this foretasted move is to the upside, investors might think it advisable to buy shares of a stock or fund to attempt to capitalize on it. If the projected move is to the downside, they might consider or be advised to sell a particular security or attempt to implement a shorting strategy.
Blanket recommendations do not consider an investor’s risk profile, time horizon, nor their investment goals.
Communicating to clients through a blanket recommendation is usually ill-advised because the recipients will have varying investment profiles. For instance, a retiree who can't afford to lose a lot of money and a young professional with a much higher risk tolerance may both be the recipients of a blanket recommendation to consider investing in a speculative stock. While the young professional may be able to tolerate the higher risk associated with it, the retiree risks losing a portion of the savings it has taken years to accumulate and could be difficult to replenish given their more limited time horizon.
Financial Industry Regulatory Authority (FINRA), the agency that regulates financial advisors, prohibits blanket recommendations.
The recipient of a blanket recommendation should carefully consider how it aligns with their investment goals and risk tolerance, and conduct their own research before acting on it.