Recommendations to Hold
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Securities regulators have recently expanded the liability of brokerage firms to include losses arising from unsuitable “recommendations to hold.” See FINRA Rule 2111.03. While to be actionable the recommendation to hold must be “explicit,” the word “hold” need not be used. In its guidance on Rule 2111, FINRA gives several examples of what constitutes an explicit recommendation to hold, as follows:
The rule would apply, for example, when a registered representative meets (or otherwise communicates) with a customer during a quarterly or annual investment review and explicitly advises the customer not to sell any securities in or make any changes to the account or portfolio or to continue to use an investment strategy. FINRA Regulatory Notice 12-55 A7. Before making such a recommendation, your stockbroker has an obligation to understand the risks of such a strategy, as well as whether the risks of this strategy are consistent with your own risk tolerance, financial situation, time horizon, etc. An improper recommendation to hold can constitute either investment fraud or investment negligence. See the prior discussion of unsuitable investments. If you have lost money because the hold strategy recommended by your stockbroker turned out to be terribly wrong, you may have a claim. Contact The Prosser Law Firm for a free, informative consultation at 901-820-4433. |