The recent market correction has caused many people to worry about the performance of their securities accounts. Senior-aged investors (and other conservative investors) are particularly at risk for losses in their accounts if they were inappropriately invested too heavily in equities and other alternative investments.
The Op-Ed published in the Wall Street Journal on August 24, 2015 notes that the low-yield bond environment has enticed some investors to “climb on the bandwagon of rising share prices.” Brokers may be similarly tempted to recommend risky stocks to their conservative investors, and to recommend concentrated levels of stocks. However, what may be suitable for a middle-aged investor may not be suitable for an senior-aged investor.
Suitability is an important investor-specific inquiry both the broker and broker-dealer must perform to ensure the investments that are recommended are appropriate given the age, relative wealth, experience and risk tolerance of each investor, among other factors. A broker’s unsuitable recommendations could be especially problematic for those investors seeking stability and safety of principal, including senior-aged investors who rely on their securities portfolios to generate income.
The risks to these investors would include overconcentration in stock investments. Overconcentration occurs when a portfolio is not appropriately diversified. Generally, senior-aged investors and other conservative investors need portfolios that include an appropriately diversified mix of investments. The risk to the investor of overconcentration in stocks is obvious: when the value of those stocks drop, the investor has instantaneous losses. Because of this, it would be unsuitable in the low-yield bond environment to recommend only equity investments for conservative and senior-aged investors.
Investors have the right to seek to hold their stockbroker accountable for the losses in their securities account caused by inappropriate overconcentration and unsuitable recommendations. Generally, the investor would bring an arbitration case with the Financial Industry Regulatory Authority (FINRA).
The attorneys at Malecki Law have successfully represented many senior-aged and other conservative investors in arbitrations against broker-dealers to recover losses sustained as a result of unsuitable and overconcentrated positions that were inappropriately recommended to them. If you believe you have suffered losses in your securities account, as a result of questionable securities recommended to you, or questionable actions taken in your securities account, please contact us for a free confidential consultation.