Your Broker’s Duty to Know You: Understanding FINRA’s Customer Information Rules
Your broker is supposed to know you before they can recommend any investments. It’s not just good business practice – it’s required by FINRA rules. But many brokers either don’t collect enough information or ignore what they learn about you.
Let me explain what your broker should know about you and what to do if they’re making recommendations without proper information.
What Your Broker Must Know
FINRA requires brokers to collect and maintain current information about:
– Your age and employment status
– Your financial situation and needs
– Your investment experience and knowledge
– Your risk tolerance and investment objectives
– Your time horizon and liquidity needs
This isn’t optional – it’s mandatory.
The “Know Your Customer” Profile
Your broker should have a detailed profile of your financial situation, including:
– Your income and expenses
– Your net worth and liquid assets
– Your investment goals and time horizon
– Your risk tolerance and previous investment experience
– Any special circumstances or constraints
If your broker doesn’t have this information, they can’t properly recommend investments for you.
Red Flags to Watch For
Your broker never asked detailed questions about your financial situation or investment goals.
They’re recommending investments without understanding your risk tolerance or time horizon.
Your customer profile is outdated or contains inaccurate information.
They ignore information you’ve provided about your conservative investment preferences or limited risk tolerance.
Updating Your Information
Your financial situation and goals change over time, and your broker should update your customer information regularly. Major life events like retirement, divorce, or inheritance should trigger a review of your investment strategy.
What You Can Do
If your broker is making recommendations without proper customer information, or if they’re ignoring what they know about you:
- Document the problem in writing
- Demand that they update your customer profile
- Consider moving your account to a more responsible broker
- If you’ve suffered losses, consider legal action
Legal Implications
Brokers who make unsuitable recommendations based on inadequate customer information can be held liable for resulting losses. This is one of the most common violations in FINRA arbitration cases.
An experienced securities attorney like Robert Wayne Pearce can help you determine whether your broker violated their duty to know you and what remedies might be available.
The Bottom Line
Your broker’s duty to know you isn’t just paperwork – it’s the foundation of suitable investment recommendations. Don’t let brokers shortcut this process, because the consequences could be devastating to your financial future.