O'Reilly logo

The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails by Steven M. Sears

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

Suitability Requirement

Stockbrokers are supposed to ensure that financial recommendations are consistent with, or suitable for, an investor’s age, investment objectives, and financial status. A retiree living on a fixed-income with a relatively modest portfolio, for example, is likely to be ill suited to trade options and have all of their money in stocks. Those risks are much higher than owning a mix of bonds and stocks. But the riskier choices can generate higher commissions for stockbrokers. Besides, some stockbrokers get frustrated being stockbrokers. They want to be traders or money managers. They may think that they have a feel for the market, or what is hot, or will be hot, and they move money around to chase trends. Managing money to the market—rather than the investment goal—is wrong. Stockbrokers should help clients stick to an investment strategy. That is why it is always important to ask to see the firm’s recommended portfolio allocations to judge your account against the firm’s recommended model. The two need not match, but neither should they be diametrically opposed. Of course, everyone completes a client questionnaire when they open a brokerage account. The form usually asks information about assets, income, risk tolerances, and experience. In practice, the form seems to function more as a document that protects a brokerage firm against investor suitability complaints than anything that really helps an investor.

According to an SEC study, three approaches to suitability ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required