what is an unsuitable investment unsuitability 
an unsuitable investment is when an investment such as a stock or bond does not meet the objectives and means of an investor the investment strategy may also be unsuitable for example the portfolio asset mix could be wrong or the investments purchased may be too aggressive or too low risk for what the client needs or wants in most parts of the world financial professionals have a duty to take steps that ensure an investment is suitable for a client in the united states these rules are enforced by the financial industry regulatory authority finra suitability is not the same as a fiduciary responsibility 1understanding an unsuitable investment unsuitability unsuitable investments vary between market participants no investment other than outright scams are inherently suitable or unsuitable suitability depends on the investor s situation and will vary between investors based on their characteristics and goals in order to ensure that suitable investments are offered finra rules require investment firms to seek information about a customer s age other investments financial situation and needs tax status investment objectives investment experience investment time horizon liquidity needs and risk tolerance 1 customers are not required to provide this information so there is some flexibility if they do not having this information helps firms avoid offering unsuitable investments to a customer for example for an 85 year old widow living on fixed income speculative investments such as options futures and penny stocks may be unsuitable because the widow has a low risk tolerance she is using the capital in her investments accounts along with the returns to live she and her investment advisor would likely be unwilling to put her capital at excessive risk as there is minimal time left on her investment horizon to recoup losses should they occur on the other hand a person in their twenties or thirties may be willing to take on more risk they are still working and do not yet require their investments to live off more risk could result in higher returns over the long run and the longer investment horizon means they have time to recoup any short term losses which may occur very low risk investments may be unsuitable for this investor age is not the only factor when determining which investments are unsuitable income expected future income financial knowledge lifestyle and personal preferences are a few of the other factors that must also be considered for example some people just prefer to play it safe while others are risk takers the sleep test is a simple concept that helps in this regard if an investor can t sleep because of their investments something is wrong alter the risk level until comfortable risk is then combined and counterbalanced with the other factors to find suitable investments or to create the proper investment strategy fiduciary responsibilitysuitability and unsuitability are not the same as fiduciary responsibility they are essentially different levels of client care with fiduciary responsibility being the stricter protocol a fee based investment adviser has a fiduciary responsibility to find investments and investment strategies that are suitable for their client a commission based financial advisor or broker maybe that you get on the phone at your broker s call center typically doesn t have a fiduciary responsibility to a client but they will still seek out suitable investments 