9.3.5 Suitability
While some ethical standards for securities professionals are simple black and white, do this or don’t do that, kinds of rules, others are a lot grayer. Suitability is one of those concepts that require 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 securities 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 years in a row may be inappropriate for someone who never, ever wants to see his investments have a negative performance year. Likewise,