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Aug 9, 2017 by |

Marin County and California Securities Attorney: Suitability Rules


What to Expect From Your Financial Advisor

Rules Governing Investment Recommendations

Every day financial advisors recommend all kinds of investments to American consumers. Recommendations come from stock brokers, insurance agents, bankers, financial planners, and investment advisors. Different government, industry and company rules govern these recommendations. Generally, one of two standards controls: some advisors are constrained only to recommend “suitable” investments (the so-called suitability standard) while others are held to a stricter “fiduciary” standard, under which they are required to put a client’s interests first. If the consumer is a senior, even stricter rules apply regarding suitability, disclosures, and “free look” provisions. We at Evans Law Firm have years of experience in cases where recommendations to the consumer fell short of all these standards of conduct. If you or a loved one has been the victim of securities fraud or other breach of an advisor’s duty or have lost money due to an unsuitable investment, annuity or life insurance or have been the victim of financial elder abuse, call the experienced financial elder abuse and securities lawyers today at Evans Law Firm, Inc. (415) 441-8669 and we may be able to help. We represent clients in the State of California.

What is Suitability?

The Financial Industry Regulatory Authority (FINRA) governs financial institutions and advisors in this country and sets the rules for investment “suitability” for its members. Other agencies and state governments, including the State of California, have their own specific suitability rules. The FINRA “suitability” example states that an advisor “must have a reasonable basis to believe” that a transaction or investment strategy involving securities that they recommend is suitable for the customer. To determine whether the investment is suitable, the advisor must obtain information about
• the customer’s age;
• other investments;
• financial situation and needs, which might include questions about annual income and liquid net worth;
• tax status, such as marginal tax rate;
• investment objectives, which might include generating income, funding retirement, buying a home, preserving wealth or market speculation;
• investment experience;
• investment time horizon, such as the expected time available to achieve a particular financial goal;
• liquidity needs, which is the customer’s need to convert investments to cash without incurring significant loss in value; and
• risk tolerance, which is a customer’s willingness to risk losing some or all of the original investment in exchange for greater potential returns.

Whenever a broker or advisor tries to sell you an annuity, for example, he or she must conduct this suitability analysis. This is an extremely important step in investment decision-making and we at Evans Law Firm have seen brokers and agents avoid it entirely or trivialize it. That is wrong. Investments like annuities and life insurance tie up your money for years and are not suitable for many consumers, particularly the elderly who may need their money at any time for an emergency. Always evaluate for yourself (and with a third party and tax professional) your own cash needs and allow for enough liquidity in the event of emergencies and future needs. Keep in mind that annuity and life insurance carriers will charge heavy surrender penalties when you try to withdraw your own money ahead of the schedule the carriers set. And you may face a hefty tax on the withdrawal. Don’t let yourself be caught in that trap.

Registered Investment Advisors (RIAs) are held to the higher “fiduciary” standard. RIAs must always put their customer’s interests before all others when making recommendations and when managing the client’s accounts. They should recommend only investments that will serve your interests best not merely be “suitable” for you. Recently, the Department of Labor expanded this “fiduciary rule” to all retirement investment advisors and it’s an important move. Here at Evans Law Firm, we have seen many cases where advisors and agents failed their customers under both the suitability and fiduciary standards. We at Evans Law Firm know what the applicable standards of care are in the investment world, including for annuity and life insurance sales. If your broker or agent has violated those standards in their treatment of you, we can help. If you are a senior, you may have been the victim of financial elder abuse and we can help you too. We represent clients in the State of California.

Contact Us

If you or a loved one been the victim of a breach of fiduciary duty by your investment advisor or agent or have suffered economic loss as a result of an unsuitable investment or been the victim of financial elder abuse in Marin County or any California county, contact the Evans Law Firm financial elder abuse and securities attorneys at (415) 441-8669, or by email at Our attorneys have experience with complex financial contracts and large insurance companies. We can help guide your case through a FINRA arbitration, jury trial or toward an equitable settlement. We handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.

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