What Are A Stock Broker’s Legal Obligations to Me?
Stock brokers owe four main duties to their investing customers:
- The duty to recommend only “suitable” investments.
- The duty to disclose all material facts regarding an investment and to not misrepresent material facts about the investment.
- The duty to put their investing customer’s interests ahead of their own.
- The duty to engage in transactions only after receiving authorization from the investing customer.
An investment is “suitable” if it meets the customer’s investment objectives and is consistent with their tolerance for risk, their age, employment status and overall financial condition. An investment can be unsuitable if it (a) is too risky given the customer’s age and financial condition or (b) is too conservative given the customer’s need to earn a reasonable rate of return on his or her investments.