Suitability

While some ethical standards for securities professionals are simple black and white, do this or don’t do that, kind of rules, others are a lot more gray. Suitability is one of those concepts that requires professionals to make an ongoing effort to ensure that they are looking out for their clients’ best interests and walking the ethical line.

Suitability is the concept that not all investments are right for all clients, due to a wide variety of factors including an investment’s cost, level of risk, expected return, and growth or income features. These factors, though they may make an investment seem attractive relative to other investments, must be measured only in comparison to a client’s financial situation, investment objectives, and risk tolerance. A client’s other security holdings, financial needs, and tax status should be considered as well.

In other words, a top-ranked mutual fund that has posted great growth for ten straight years in a row may be completely inappropriate for someone who never, ever, wants to see their investments have a negative performance year.