General Recommendations You often hear that an advisor makes a general recommendation to buy or sell an asset. But what exactly is an available request? It is advised to buy or sell an asset, usually a stock, but could be some other asset such as foreign exchange or gold, which is widely distributed to all of the advisor’s clients. The advice covers the advisor’s client base like a blanket. Everyone receives the same direction regardless of whether or not it is appropriate or even matches their investment objectives or risk tolerance.
When sending a blanket recommendation is most appropriate, such as a statement telling all clients that they should diversify their portfolios to include alternative investments and asset classes such as real estate or commodities. In other cases, the blanket recommendation may be grossly inappropriate, such as a recommendation to buy highly speculative and risky stocks in a new IPO.
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Most general recommendations recommend buying or selling a specific stock, sector, or asset. This type of communication can vary but is often intended to alert clients that research by the adviser or the institution’s research staff indicates that the recommended stock, sector or asset is likely to make a big move in one direction or another soon. If the general recommendation is an expectation of movement to the upside, clients may want to open a long position in the stock or other asset. However, if the anticipated movement is downward,
The main drawback of this general recommendation is that they do not consider each client’s risk profile, investment objectives, or time horizon.
Using a blanket recommendation in client communications is often inadvisable due to the different investment profiles of the adviser’s clients. For example, a client may be a retiree who needs safe, income-producing investments.
Another client could be a single young professional with a much longer time horizon and a much higher tolerance for risk.
A blanket recommendation to buy an upcoming speculative IPO is undoubtedly appropriate for the second client, who can tolerate the risks of buying shares in an IPO.
Still, it is grossly inappropriate for the first client who needs to maintain his capital and avoid losses. Potentially large.
Financial advisers are regulated by the US Financial Industry Regulatory Authority, which has prohibited their advisers from issuing general recommendations on the stock of individual companies.
According to current regulations, financial advisers and stockbrokers must comply with the suitability obligation. This means that they can only make recommendations to their clients that can be considered appropriate and consistent with the client’s best interests.
Both financial advisors and broker-dealers are under the auspices of the Financial Industry Regulatory Authority (FINRA) in the United States. Both require to make only recommendations that are appropriate for their clients.
This standard requires that brokers, financial advisors, and other associated persons “Have a reasonable basis to believe that a recommended investment transaction or strategy involving a security or securities is appropriate for the client. Base on information obtained through due diligence. The [company] or associated person to determine the client’s investment profile”.
In other words, investment advisers bound by FINRA rules and regulations must consider the risk profile, time horizon. And investment objectives of their clients when submitting any security recommendations.
Blanket recommendations do not consider any of these client characteristics, so FINRA prohibits blanket recommendations in the United States. Any blanket recommendation is likely to provide advice that directly conflicts with the objectives of specific clients and could be consider particularly inappropriate for them.
Suppose you ever receive a general recommendation from a financial institution or advisor. No matter how well respected. In that case. You should carefully consider whether the advice given in their proposal is applicable and appropriate to your situation. Consider whether it fits your risk tolerance and is consistent with your investment objectives. Do your research on the recommendation before taking any action.
Remember that general advice is given without regard to the person’s situation or interests. There may be cases where the advice is give more prevalent. And if this is the case it might be a good idea to follow it. These general recommendations could be ways to diversify your portfolio. Or how much money you should keep in liquid cash reserves. As long as the advice is available, it is worth considering.
people will need to be more cautious and pay more attention to the details of the request. These particular recommendations may still be appropriate for your situation but may also be inappropriate. And the advice given should be avoid.
In some cases, the general recommendations are more segmented. Which will help make them more appropriate. For example. A financial advisor may send an available request about saving for retirement. And the suitable vehicles for it but may only send it to clients between the ages of 25 and 45. Or you could send a piece of general advice on social security. Or bond income to your clients near or past retirement age.
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