Law Office of Christopher J. Gray, P.C., a New York City law firm handling arbitration claims on behalf of investors throughout the United States, has filed multiple Financial Industry Regulatory Authority (“FINRA”) arbitration proceedings on behalf of investors who allege that registered representatives of LPL Financial Holdings, Inc.’s (Nasdaq:LPLA) brokerage subsidiary recommended unsuitable investments in non-traded REITs.
Suitability claims arise when stockbrokers or investment advisors recommend investments that are not appropriate for an investor’s financial circumstances, risk tolerance, or investment goals. FINRA Conduct Rule 2310 requires that Members and their Representatives have a reasonable basis to recommend a transaction or investment strategy suitable for the customer, based on information obtained through reasonable diligence and the customer’s investment profile. A customer’s investment profile includes, but is not limited to, the customer’s age, other investments, financial situation and needs, tax status, investment objectives, investment experience, time horizon, liquidity needs, and risk tolerance.
Cases filed by the Gray Firm allege that in certain circumstances, LPL lacked a reasonable basis to recommend certain non-traded REITs, including Inland Western REIT (now known as Retail Properties of America. As a private unlisted investment, Inland Western was a Non-Conventional Investment (“NCI”). FINRA’s Notice to Members 03 71 states that “since NCIs often have complex terms and features that are not easily understood,” there exists the potential for customer harm or confusion since investors do not understand the risks involved. Members must conduct appropriate due diligence/reasonable basis suitability before offering these investments to the public. Specifically the Notice states that when offering NCI investments, FINRA Members are required to: