Customer Recommendations, Professional Conduct, and Taxation


All recommendations to customers must be suitable based upon the customer's investment objectives, financial profile, and attitude towards investing. Advisers usually make verbal recommendations to customers. Advisers will review their customers' investment objectives with them and offer facts to support the basis for their particular recommendations, as well as an explanation as to how the recommendations will help a customer meet his or her specific objectives. Any predictions about the performance of an investment should be stated strictly as an opinion or belief, not as a fact. If the firm uses reports that cite past performance of the firm's previous recommendations, the report must contain:

• The prices and dates when the recommendations were made.

• General market conditions.

• The recommendations in all similar securities for 12 months.

• A statement disclosing that the firm is a market maker (if applicable).

• A statement regarding whether the firm or its officers or directors own any of the securities being recommended or options or warrants for the same security.

• If the firm managed or comanaged an underwriting of any of the issuer's securities in the last three years.

• A statement regarding the availability of supporting documentation for the recommendations.

When making a recommendation, an adviser may not:

• Guarantee or promise a profit or promise no loss.

• Make false, misleading, or fraudulent statements.

• Make unfair comparisons to dissimilar products.


The fiduciary duty of an investment adviser goes beyond that of a broker dealer. The investment adviser is required to develop a client profile when opening the client's account and must update it regularly as the client's needs change. Investment advisers have a fiduciary duty to provide only suitable advice to clients. Violations of state and federal laws may result in fines, expulsion from the state or industry, or a jail term. Investment advisers are expected to adhere to all of the rules and regulations set forth in the Investment Advisers Act of 1940, as well as all state and federal laws.

< Prev   CONTENTS   Next >