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Home » Unsuitable Recommendations Can Create Unwelcomed Lawsuits

Unsuitable Recommendations Can Create Unwelcomed Lawsuits

Posted June 30, 2020 by Steve Savant Leave a Comment

The cost of fraud is expensive with attorney fees, settlement costs, revocation of your license(s) and not covered by your errors and omissions insurance. Client suitability should be a chief concern in product and planning recommendations. There are many risk tolerance tests, psychological questionnaires and past financial history to collect a client’s attitude about money during the discovery stage of the interview process.

Case in point: A financially conservative married couple in their mid-thirties conveyed their profound aversion to market volatility to their adviser. The adviser used the Ibbotson Chart as an example of long-haul profitability and stating the “lost decade” (2000-2009) was a once in a hundred-year anomaly.

After all his prospects were 30 years from retirement and their apprehensions weren’t justified according to the chart. But their conservative psychological profile was so dominate that he set aside his own recommendation of mutual growth funds over the next 30 years for fixed interest rate products.

You could argue that the adviser didn’t educate his client enough to make a better decision, but in the end, he couldn’t assume that another lost decade wouldn’t have occurred. You can either support your client or decline serving them.

Filed Under: E & O Insurance

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